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If the headline sounds ominous, that’s by design. This is not hyperbole. The United States is funding numerous Chinese companies—many with ties to the Chinese Communist Party, known as the CCP, and the Chinese military. This is the very country posing the most serious threat to our national security in our lifetime.
Over the years, we’ve learned of public employee retirement funds from Delaware to Michigan, California to New Jersey investing in Chinese technology companies that produce everything from drones to artificial intelligence algorithms. Unlike in the U.S., where there are clear delineations between the private and public sectors, those distinctions don’t apply in China. Technology being developed by so-called private industry is, in many cases, being applied directly to the military.
“If American capital continues to flow to Chinese military companies, we are at risk of funding our own destruction,” said Rep. Mike Gallagher, R-Wisconsin, chair of the House Select Committee on the Chinese Communist Party.
Gallagher estimates U.S. private investments in China top $200 billion, with a sizable portion of that money going directly to tech companies with ties to the CCP and Chinese military. Gallagher knows what he’s talking about. He holds a doctorate in government and international relations from Georgetown University, three master’s degrees in government and security studies and was twice deployed to Iraq as a U.S. Marine Corps intelligence officer.
Chinese companies are also investing billions in U.S. industry. From 2011 to 2018, Chinese state-owned and private firms invested nearly $25 billion in acquiring U.S. technology companies focused on information, communications and energy. China has prioritized technology transfer of intellectual property from these U.S. companies to China.
But don’t think this story is all doom and gloom. America is fighting back.
Last year, the U.S. Department of Defense established the Office of Strategic Capital with two main goals: Identify and prioritize promising critical technology for national security, then fund investments in those technology areas. The office leverages loans, loan guarantees and equity investments to attract and scale private capital into critical technologies. These funding sources are vetted to ensure they aren’t influenced by bad actors.
In 2019, the Defense Department established National Security Innovation Capital, which identifies companies developing cutting-edge, dual-use hardware solutions, critical to national security. NSIC then awards funding via agreements to the companies, thereby addressing the shortfall of private investment from trusted sources.
Additionally, the Committee on Foreign Investment in the United States, led by the Department of the Treasury, is an interagency committee authorized to review proposed foreign mergers and acquisitions to determine whether they raise national security concerns. It also has oversight over non-buyout scenarios to evaluate for national security concerns.
Policymakers are also stepping up. U.S. Rep. Jim Banks, R-Indiana, has introduced legislation that would prevent the Thrift Savings Plans, a federal retirement fund, from Chinese and other adversarial investment. The Indiana Legislature recently ordered the Indiana Public Retirement System to divest all its holdings that are closely associated with the People’s Republic of China or the Chinese Communist Party.
The Biden administration gets credit for a recent executive order prohibiting U.S. investment in China, specifically in the areas of artificial intelligence, quantum computing and advanced semiconductors specifically designed for military or intelligence uses. This order builds on prior restrictions of U.S. exports of advanced chips and semiconductor-manufacturing equipment to China. However, as The Wall Street Journal pointed out, the measures still leave plenty of room for investment that puts America at risk.
U.S. investment in Chinese startups dropped more than 30% from 2021 to 2022. U.S. investment in Chinese venture funds fell nearly 80% between the first quarter of 2019 and this year. However, we need to realize our dependency on cheap Chinese goods and investment opportunities comes with a price. As the great investor Warren Buffett once said, “In the business world, the rearview mirror is always clearer than the windshield.” However, when dealing with China, we need to continuously clear off the windshield and take a long, hard look.•
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Dodd is founder and advisory board chair of Dioltas.
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