Select Committee Suggests Even Passive Investments in China Should Be Banned
Both outbound and a new approach for the Committee for Foreign Investment in the U.S. drew attention at a recent hearing of the House Select Committee on the Chinese Communist Party, and the chairman of the committee suggested that limiting investment screening to active investors, such as venture capital firms, is not enough.
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Some analysts have said only "smart money" in certain fields (see 2304130034) should be restricted, but others have said they expect the White House executive order to address both active and passive investments (see 2305110033).
Committee Chairman Mike Gallagher, R-Wis., said in his opening statement that "American capital should not fuel human rights abuses." He also suggested that with new restrictions on disclosures at Chinese firms, investment managers cannot fulfill their fiduciary duties and stay invested in those companies.
As he questioned witnesses, he told former U.S.-China Economic and Security Review Commission Chairman Roger Robinson, "As far as I can tell, no one is really considering American investors capitalizing in Chinese firms listed on U.S. exchanges or traded through ETFs and mutual funds as ‘outbound investment,’ but it sounds very much like outbound investment to me."
Robinson agreed. He argued that all investment in Chinese companies should be curtailed.
Rep. Andy Barr, R-Ky., asked Robinson if he supported his bill that would ban American investments in any company on a U.S. sanctions list, and require federal agencies to harmonize their respective lists (see 2302280064).
Robinson said that if you want to lower "the risk exposure, particularly to the bad actors in China’s corporate world, this is a very good place to start."
"Wall Street firms have made very plain ... that if it’s not illegal, they’re going to do it. Human rights abuses are somebody else’s problem. National security concerns are, again, somebody else’s job. Our job is returns," he said. "So fine, OK. Then let’s give them clarity on the law. And your proposed bill does so."
Former U.S. trade representative Robert Lightizer, who was a member of CFIUS when he was in the Trump administration, criticized CFIUS's approach, which he said is biased toward approving transactions.
"Outbound investment to China should be severely restricted," he said. "The status quo cannot continue -- this is not the time for half measures."
In response to questions, he said CFIUS's mandate should not be limited to areas of national security. "Every dime’s worth of Chinese investment should be notified, and it should only be permitted if it can be demonstrated to be in the interest of the U.S."
He called the current approach "very troubling," and suggested that U.S. officials tasked with analyzing risk or drawing up mitigation agreements know that they could leave the government and join lawyers and accountants arguing for foreign companies.