In a significant development, the two major chip companies are trying to block or dilute the proposal.
In a significant development, the two major chip companies are trying to block or dilute the proposal.
A s Congress wrangles over its multibillion-dollar China-competition package, the fate of a landmark proposal to crack down on U.S. investment in China is uncertain. Companies with operations in China are lobbying against it. Multiple sources with knowledge of the negotiations told National Review that Intel and Qualcomm in particular have vocally sought to neuter the investment-review proposal.
China hawks on both sides of the aisle hope to win the inclusion of some form of the proposal in the Bipartisan Investment Act, a massive industrial-policy bill that includes $52 billion to bring more chip manufacturing to U.S. soil. Congressional leaders and the Biden administration want to advance the bill, which is touted as a counter-China package, later this summer, before midterm-election politicking gets in the way of legislating.
Sources consulted by NR variously said that the two major semiconductor-chip companies are either signaling their outright opposition to the proposal or working to dilute its powers. Either way, this is a significant development, as both firms are eyeing a massive windfall from the chip subsidies.
While there are ongoing discussions about specific guardrails to prevent the new subsidies from funding an expansion of these firms’ operations in China, a conversation about outbound-investment review is also relevant, as it might hamper those plans. The idea behind outbound-investment review is to give the U.S. government the ability to screen U.S. companies’ plans to invest in China on the basis of national-security concerns. Although U.S. law already allows the government to screen foreign entities’ plans to invest in this country through the Committee on Foreign Investment in the U.S. (CFIUS), this would create what some in Washington have dubbed a “reverse-CFIUS.”
There’s currently no sweeping legal prohibition against U.S. investment in Chinese firms that collaborate with the People’s Liberation Army and Chinese party-state agencies on military and surveillance technology. Although the government does have blacklists to block Americans from investing in specific, designated firms, U.S. financial-services and venture-capital outfits have been reported to partner with Chinese firms that play key roles in Beijing’s defense-industrial base.
“I think there is one broader dynamic underlying all this that is important to magnify,” said Maseh Zarif, director of congressional relations at FDD Action. “Confronting the national security threat posed by the Chinese Communist Party and accepting status quo U.S.–China commercial ties, particularly in fields related to national security, are mutually exclusive.”
Negotiators are currently crafting a new version of the proposal for outbound-investment review, two congressional aides and other sources said. A previous version, which the Wall Street Journal reported on last month, would have allowed the U.S. government to restrict certain investments in “foreign adversary” countries.
That version, however, was seen by industry as overly broad, and it’s likely being changed so as not to grant the executive branch the ability to step in and stop investments it deems to be contrary to U.S. national-security interests. The compromise version is still expected to require businesses to disclose the investments they plan on making through a notification process.
Yet even that might not cut it for the outbound-investment review’s opponents, such as Senator Pat Toomey, the Senate Banking Committee’s ranking member. He worries that it would place an undue burden on industry and believes that its potential inclusion in the China bill is not the right process by which to consider adopting the proposal.
“I have yet to be convinced that existing export-control laws are falling short,” Toomey told NR in a statement last week. “Moreover, I’m concerned this proposal grants the federal bureaucracy sweeping new authorities to dramatically disrupt and halt the free flow of trade and investment, risking slower economic growth and higher prices for consumers. Such a dramatic expansion of the administrative state should be first carefully considered through regular order.”
Toomey aides, speaking to NR on condition of anonymity, emphasized that the senator had opposed the inclusion of outbound-investment review in the China-competition package since the first day of the bipartisan deliberations on a final version of the legislation, while clarifying that the senator doesn’t want Intel and Qualcomm to receive government funding.
Meanwhile, industry groups across Washington have mobilized to oppose the bill, citing similar complaints.
In a June 23 letter, ten industry groups, including the U.S. Chamber of Commerce, the Advanced Medical Technology Association, and the Information Technology Industry Council, wrote to members of Congress to say that they “firmly oppose” the latest version.
The letter stated: “It remains the case that nearly every sector of the U.S. manufacturing and agricultural economy — and the services sectors that critically enable them — appears to be covered. The resulting compliance burden for U.S. business and the U.S. government would be very high, and it would require the creation of a massive new bureaucracy to administer its new strictures.”
For its part, Intel told NR that it’s still engaged in discussions with Congress and the Biden administration on the Bipartisan Innovation Act and that it’s reserving judgment on outbound investment.
“We have not yet seen the most recent outbound-investment proposal, so we have not taken a position,” a spokesperson for the company said.
Earlier this year, Intel CEO Pat Gelsinger defended his company’s apology for singling out forced-labor abuses in China, while defending Intel’s continued expansion there.
Qualcomm, which also has plans to double down on its operations in China, did not respond to a request for comment.
The Biden administration has not yet weighed in publicly on the outbound-investment issue, but top White House aides, including Kurt Campbell, Tarun Chhabra, and Peter Harrell, are said to support congressional efforts to pass an outbound-investment-review process.
If Congress declines to move forward with a version of the competition package currently being negotiated, the debate surrounding outbound-investment review could ultimately be rendered pointless. After Senate minority leader Mitch McConnell threatened to block a bipartisan China-competition package last week over Democrats’ potential move to revive the Build Back Better Act, there have been doubts about whether the talks will continue.
But if the China-competition package does pass, even a watered-down version of outbound-investment review could be the start of a longer process that future legislation would address and build on.