US lawmakers urge Yellen to speed up China outbound investment rules

By Michael Martina

WASHINGTON (Reuters) – The Republican and Democratic leaders of a U.S. congressional committee on China urged Treasury Secretary Janet Yellen to urgently implement outbound investment restrictions on the country, warning that Beijing was using American capital to develop technologies as her department debated new rules.

U.S. President Joe Biden in August issued an executive order authorizing the Treasury secretary to prohibit or restrict U.S. investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems.

The order, expected to be implemented in the coming year as Treasury develops new guidelines, aims to prevent American money and expertise from helping China develop technologies that could support its military modernization.

China has condemned the move, but some U.S. lawmakers have argued it has too many loopholes.

“As Treasury deliberates on the definitions and scope to be issued in these guidelines, the Chinese Communist Party (CCP) is developing advanced technologies with the help of American capital and know-how,” Mike Gallagher and Raja Krishnamoorthi – the Republican chair and ranking Democrat on the House of Representative’s select committee on China, said in a letter.

Yellen should adopt a broad definition of technology in her guidelines on the investment restrictions, the lawmakers said in the letter, dated Oct. 30, arguing China had blurred the lines between commercial and military technology.

“We should expect that the CCP will seek to evade restrictions that are narrowly defined,” Gallagher and Krishnamoorthi wrote, adding that Yellen should not allow for “excepted transactions” they felt would dilute the effectiveness of the rules.

They said Treasury should work with U.S. authorities to pursue maximum penalties for violations, and also address more passive flows of U.S. capital, such as through public markets and mutual funds.

Some U.S. officials have said the outbound investment rules should not be overly broad to avoid harming the U.S. economy. Others, including former Biden administration officials, have called the measure a good first step, but said that Congress should provide resources to expand it.