The Corner

National Security & Defense

Will Biden’s New Rule on Chinese Military Companies Work?

Soldiers march with a Chinese Communist Party flag during a rehearsal for a military parade in Beijing, China, October 1, 2019. (Jason Lee/Reuters)

After the Trump administration started enforcing a 20-year-old sanctions law to designate Communist Chinese Military Companies operating in the U.S. last year, two of them successfully sued to have the penalties lifted.

Now the Biden administration is overhauling its enforcement of the sanctions, saying that its changes will make the crackdown more effective, but critics have their doubts.

Xiaomi, a leading Chinese smartphone manufacturer and one of the dozens of sanctioned Chinese firms, convinced a U.S. federal court in March that it is not affiliated with China’s military-industrial base. The Pentagon had argued, unsuccessfully, that the consumer-tech company’s investments in 5G and artificial-intelligence technology could play a role in Civil-Military Fusion efforts. Ultimately, the administration relented, removing Xiaomi from the list.

The government was dealt a similar defeat in May, when the same court ruled in favor of Luokung Technology, a location-services company also designated under the Chinese-military-firms law, for similar reasons. Both have been reinstated to U.S. stock exchanges from which they were banned as a result of the sanctions.

The failure to adequately enforce the Chinese-military-company sanctions is a big problem, and congressional Republicans proposed a legislative fix that entails expanding the definition under the law, as I reported last month. The Biden administration, however, seems to have implemented its own solution this week. Bloomberg has the scoop on the new executive order:

Under Biden’s amended order, the Treasury Department will create a list of companies that could face financial penalties for their connection to China’s defense and surveillance technology sectors, the people said. Until now, the financial sanctions and selection of targeted companies were tied to a congressionally-mandated Defense Department report.

The amended order, which Biden is expected to sign later this week, will change the criteria for blacklisting entities to capture those that operate in the defense or surveillance technology sectors. The Trump order targeted companies owned, controlled or otherwise affiliated with the Chinese military.

The Biden administration is set to keep a large number of previously listed entities and Treasury’s Office of Foreign Assets Control will add new entities as part of the order, one of the people said. Treasury would consult the State and Defense departments in the listing process.

All of this sounds like bureaucratic minutia, but the change will have a significant impact on the government’s ability to restrict the operations of firms tied to China’s defense-industrial base enriching themselves with American money. Bloomberg reports that Biden officials say that the change — shifting enforcement of the order from Defense to Treasury — will make the military-company designations easier to defend in court, in addition to clarifying rules regarding subsidiary companies.

But the former official who championed some crucial Trump-era measures to crack down on the listing of Chinese firms on U.S. stock exchanges was not impressed. Roger Robinson, a Reagan-administration official who once chaired the U.S.-China Economic and Security Review Commission, told Bloomberg that the change “would tend to help Wall Street maintain the status quo to the extent possible.”

If the Biden order doesn’t sufficiently ban Chinese military companies from attracting U.S. investment, Congress will need to broaden the law’s scope and require enforcement by the executive branch.

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