U.S. funding for China tech sector draws new scrutiny
WASHINGTON — Even as Washington takes a hard line on keeping U.S. technology and data beyond China’s reach, the federal government has thus far been slow to close another channel of technology assistance: potentially billions of dollars in U.S. investment in Chinese tech startup companies.
Lawmakers stepped into the issue last year, using the fiscal 2023 omnibus spending bill to direct the Treasury and Commerce departments to find a mechanism to track U.S. capital flows into tech sectors in China and other countries. Lawmakers and administration officials say the move is essential to curbing China’s tech ambitions.
“There is a fundamental contradiction in our China policy today: the U.S. government is placing increasing scrutiny on technology transfer and tightening export controls in concert with our allies to counter malign CCP-directed companies,” said Rep. Mike Gallagher, R-Wis., the chairman of the House Select Committee on the Strategic Competition Between the U.S. and the Chinese Communist Party.
“At the same time however, our government is providing a de facto green light to the unlimited capitalization of many of these companies and others like them in strategic technology sectors,” Gallagher said in an email, adding that those capital flows must be addressed. “The Select Committee will be taking a close look to both determine the extent of the problem and to build consensus around bipartisan solutions.”
The Treasury and Commerce departments are required to report to Congress on the progress on the mechanism by the end of February.
Congress last year appropriated billions of dollars to support U.S. chip manufacturing and voted to ban TikTok, a Chinese-owned video sharing app, from government-issued devices because of concern that China could be using the devices to collect data or spy on users.
But investment money can flow to China, sometimes accompanied by knowledge transfer, expert coaching, quality control practices and other intangible benefits, without oversight.
“I spent a decade at a venture capital firm, and both on the inbound and outbound side we ought to acknowledge that this is a real issue,” Nathaniel Fick, the ambassador for cyberspace and digital policy at the State Department, said at an event last week hosted by the German Marshall Fund.
“That money often comes with strings attached, requiring partnerships, technology access and other things,” said Fick, a former Marine Corps officer and founder of a tech startup. “So this is a real issue. I don’t think it’s a boogeyman. And I’m glad that it’s now getting the attention that it deserves.”
The Treasury and Commerce departments didn’t respond to emails seeking comment.
The first task for researchers, lawmakers and executive branch officials is to figure out how to track and separate U.S. capital flows from other pools of capital that go to startups in China.
From 2015 to 2021, at least $40.2 billion, or about 37%, of the $110 billion in capital raised by Chinese artificial intelligence companies involved U.S. investors, according to a report released last week by the Center for Security and Emerging Technology at Georgetown University’s Walsh School of Foreign Service.