U.S. lawmakers call to vet China tech funding, China furious over changes to State Dept.’s Taiwan relations webpage & PRC military threat to Taiwan “acute,” US Intel -- China Boss News 5.16.22
Newsletter -- *No weekend update next week (Friday 27th) or newsletter the following week (Monday 30th).
The Big Story in China Business
U.S. lawmakers call to vet China tech funding
A new proposal gaining support on Capitol Hill could make investing in Chinese tech companies more challenging. The Wall Street Journal last week reported that "Congress may soon require government agencies to vet tech startups seeking federal funding, after a Defense Department study found China is exploiting a popular program that funds innovation among small American companies.”
WSJ:
The April 2021 report, which has been circulating among lawmakers on Capitol Hill, details eight case studies it says have “national and economic security implications.” The studies include examples of [Small Business Innovation Research] program participants who dissolve their American companies, join Chinese government talent programs and continue their work at institutions that support the People’s Liberation Army, the armed wing of the Communist Party.
The report also documents instances of SBIR recipients taking venture-capital money from Chinese state-owned firms and of working with Chinese entities that support the country’s defense industry. The report concludes that the SBIR program needs a due-diligence process to identify entities of potential concern that would then receive a more detailed review.
The study’s recommendation for a new "due-diligence process" to vet for national security threats has gained traction with lawmakers who would like to see it added to a “five-year reauthorization of the SBIR” that is now “part of a sweeping, bipartisan legislative package working its way through Capitol Hill,” WSJ said.
WSJ:
Sen. Joni Ernst of Iowa, for example, a senior Republican on the Small Business Committee, said she would reject reauthorization of the award programs should the legislation fail to respond to the call for vetting.
“We can and should take serious steps to compete with the Chinese Communist Party, but pouring billions of dollars into research and development with little oversight or accountability is not the answer,” Sen. Ernst said Wednesday.
Pentagon officials have been working to also address dependency on PRC money for years, according to Breaking Defense’s Paul McLeary who highlighted a major effort to push back Chinese influence in US critical supply chains.
McLeary, Breaking Defense, April 2021:
In recent years, Chinese investment in small US tech and manufacturing firms has increased by a staggering 420% according to one analysis, an avalanche of money that could directly impact national security if that spigot were turned off in a time of crisis.
In an attempt to reverse that trend, in January then-Pentagon acquisition chief Ellen Lord established the Trusted Capital program to marry vetted US investors with small tech firms focused on areas like artificial intelligence, biotech, and other emerging technologies, an effort that has been picked up by the Biden administration.
But China Boss thinks a lot of the credit for capturing congress’ attention goes to the US Economic and Security Review Commission whose 2021 Annual Report to Congress put U.S.-China Financial Connectivity and Risks to U.S. National Security (Chapter 2 Section 4) in lawmakers cross-hairs.
The Trump Administration in its waning weeks hurriedly restricted U.S. investment in some Chinese military-related and surveillance companies. The Biden Administration rationalized the process and dropped some companies and added others. Thus, certain outbound investment was declared to endanger U.S. national security. Up to this point government policy had focused primarily on the dangers of trade and inbound Chinese investment.
Recognition that U.S. investment banks and institutional investors were endangering national security by investing in Chinese military-related and surveillance companies is a major step forward. These “sophisticated investors” cannot credibly claim they did not know, for instance, that AVIC Shenyang Aircraft Company is a primary producer of Chinese fighter jets, including its stealth aircraft. Among U.S. investors with a history of investment in the company are Blackrock, Charles Schwab Investment Management, Dimensional Fund Advisors, Goldman Sachs, J.P. Morgan Asset Management, Lazard Asset Management, Northern Trust, State Street Global Advisors, TIAA-CREF, and Vanguard.
Some argue these investments were not “illegal.” Until now, that was certainly true. One might be excused for thinking that a basic responsibility of American citizenship ought to be not to do anything to endanger U.S. troops. These investors handle trillions of dollars of U.S. workers pension funds and 401K accounts. Most workers have no idea where their retirement savings are invested. Public employee funds, though, fit into the category of “sophisticated investors” and should have done their due diligence on these investments.
For the rest of WSJ’s report, Pentagon’s China Warning Prompts Calls to Vet U.S. Funding of Startups, click here. For Global Times’s dismissal of U.S. concerns, Paranoid vetting about 'China links' only hurts innovation of the US tech startups, click here. For McLeary’s Breaking Defense analysis, DoD’s New Pushback Against Chinese Money In US Defense Industry, click here.
Law and International Xi
China furious over changes to State Dept.’s Taiwan relations web page
The State Department last week removed the sentences “‘The United States does not support Taiwan independence’ and ‘acknowledging the Chinese position that there is one China and Taiwan is a part of China,’” on its Taiwan relations webpage, Foreign Policy’s China editor James Palmer said.
Palmer, FP:
Washington has substantially stepped up its relations with Taipei in recent years. Although China, Taiwan, and the United States all in theory agreed on the “One China” policy, they have long maintained radically different interpretations.
Technical wording over Taiwan is a major red line in Chinese media and government, where workers can be fined weeks of income for accidentally implying that Taiwan is a state. Although it is unclear how it was decided, the State Department change has provoked fierce condemnation from Beijing.
In a press conference in Beijing, MOFA spokesman Zhao Lijian fired back “that there is only one China, Taiwan belongs to China, and that the People's Republic of China is the sole legal government representing the whole country,” and “‘[t]his kind of political manipulation on the Taiwan question is an attempt to change the status quo in the Taiwan Strait, and will inevitably stir up a fire that only burns the United States,” Reuters said.
When asked for clarification by the press, U.S. State Department spokesperson Ned Price said "our underlying policy has not changed.” But he added:
Reuters:
"We regularly do updates on our fact sheets. Our fact sheets reflect, in the case of Taiwan, our rock-solid unofficial relationship with Taiwan, and we call upon the PRC to behave responsibly and to not manufacture pretences to increase pressure on Taiwan.”
For James Palmer’s analysis in Foreign Policy’s China Brief newsletter, China's COVID-19 Data Doesn't Match Its Harsh Restrictions, click here. For the rest of Reuter’s report, China rebukes U.S. for changing Taiwan wording on State Department website, click here.
Geopolitics
US China policy “takes shape” as Bejing’s “new military strategy” emerges
Keep reading with a 7-day free trial
Subscribe to China Boss News to keep reading this post and get 7 days of free access to the full post archives.