On January 10, 2023, the United States House of Representatives approved by a vote of 365-65 a resolution to establish the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party (the “Select Committee”). The Select Committee was established due to bipartisan concerns in Congress about China’s rising economic threat to the United States. The Select Committee, composed of 16 members—nine Republicans and seven Democrats, has a statutory mission to examine “the status of the Chinese Communist Party’s economic, technological, and security progress and its competition with the United States.” The Select Committee is authorized to conduct investigations and issue policy recommendations. While it does not have any legislative jurisdiction and, therefore, is not authorized to draft and approve bills or resolutions, the Select Committee’s policy recommendations are likely to be very influential and could set the stage for further legislative action by Congress. For this reason, it is critical for directors and officers of US multinational companies, as well as their legal advisors and cross-border deal makers, to understand the priorities of the Select Committee and to consider the Select Committee’s policy recommendations when assessing transaction closing risk as well as company strategy.
The Select Committee’s Role & Priorities
Representatives Mike Gallagher (R-WI) and Raja Krishnamoorthi (D-IL) respectively, serve as Chairman and Ranking Member of the Select Committee, a pairing which signaled both political parties’ interests in having the Select Committee fulfill its statutory mission. Chair Gallagher and Ranking Member Krishnamoorthi, who had previously worked together on legislation regulating TikTok’s use in the United States, set the tone for bipartisan cooperation early by identifying areas where they expect to find common ground on policy and legislation matters. Further, other members assigned to the Select Committee have released statements indicating that they will seek to work across the aisle.
Chair Gallagher has stated that his priorities will be to “[r]estore supply chains and end critical economic dependencies on China, [s]trengthen the military, [e]nd the CCP’s theft of American personal data and intellectual property, and [c]ontrast the CCP’s techno-totalitarian state with the values of the Free World.” The Select Committee has a two-year authorization, so it will seek to issue its recommendations by the end of 2024.
The Committee’s First Hearing
On February 28, 2023, the Select Committee held its first hearing, titled “The Chinese Communist Party’s Threat to America.” The witnesses for the hearing featured two former Trump administration officials, National Security Advisor H.R. McMaster and Deputy National Security Advisor Matthew Pottinger, as well as Tong Yi, a Chinese human rights advocate and former Secretary to a prominent Chinese dissident, and Scott Paul, President of the Alliance for American Manufacturing. Each of the witnesses sharply criticized China’s economic policies as unfair and contrary to global trading rules and urged the Congress to take steps to significantly reduce the United States’ dependence on trade with China.
The Committee members’ questions at the hearing focused on a range of topics—from the Chinese government’s motivations to compete with the United States, to trade and investment issues. With respect to trade issues, Mr. Paul stated that “I think a trade enforcement strategy is key, but I think a domestic competitiveness agenda is also key, and that requires public investment, that requires attention to our infrastructure, to our workplace, to make sure that we’re not only the leaders in innovation, but we’re the leaders in production again.” Specifically, he called for more restrictions akin to recently implemented semiconductor technology export controls, enforcement of the Uyghur Forced Labor Prevention Act, building on the CHIPS and Science Act and other domestic manufacturing incentive programs for critical technologies, the screening of outbound investments to China and tightening the review process for the Committee on Foreign Investment in the United States (CFIUS), revising trade remedy laws through legislation like the Leveling the Playing Field 2.0 Act, and revoking normal trade relations with China. In response to questions from Congresswoman Mikie Sherrill (D-NJ) on how to reduce Chinese intellectual property theft, Mr. Paul noted that efforts by Japan and the Netherlands to match US export restrictions on semiconductors can bring a “screeching halt” to Chinese semiconductor development.
General McMaster called for the blocking of transactions involving Chinese investors buying land near sensitive military installations. General McMaster also called on the United States to reimplement “portions of the [Trans-Pacific Partnership], especially… data standards, for example,” in order to reassert US leadership in the Indo-Pacific. He noted that the United States. should also pursue Trade Promotion Authority with Taiwan and Great Britain.
Financial services and investment issues also came up during the hearing. Mr. Pottinger criticized the inclusion of Chinese companies on major stock indices, saying that this allowed “more and more money… [to passively flow] from American pensioners, [and] endowment funds at universities, into these Chinese companies.” He also called on the Treasury Department to expand restrictions on US investment in Chinese military companies, noting that Americans are banned from investing in only 68 Chinese military companies. Congressman Blaine Luetkemeyer (R-MO) focused his questions on asset managers’ investments in China, calling on asset managers to “decouple our investments so that we can slow down their [Chinese companies’] rate of growth so they can’t compete with us.” Mr. Pottinger supported this approach, and added that, as long as legal restrictions on investment in China were clear, US companies are “quite law abiding” and would comply.
The Select Committee’s Second Hearing
On March 23, 2023, the Select Committee held its second hearing, titled, “The Chinese Communist Party’s Ongoing Uyghur Genocide.” The witnesses were Ms. Gulbahar Haitiwaji, a concentration camp survivor and author of How I Survived a Chinese “Reeducation” Camp: A Uyghur Woman’s Story; Ms. Qelbinur Sidik, a human rights advocate and concentration camp witness; Dr. Adrian Zenz, Senior Fellow and Director of China Studies at the Victims of Communism Memorial Foundation; Mr. Nury Turkel, Chair of the United States Commission on International Religious Freedom; and Ms. Naomi Kikoler, Director of the Simon-Skjodt Center for the Prevention of Genocide at the United States Holocaust Museum.
The purpose of the hearing was to provide firsthand accounts of human rights abuses in the Xinjiang Uyghur Autonomous Region of China. However, Mr. Turkel, Ms. Kikoler, and Dr. Zenz called on the United States to fully implement Global Magnitsky sanctions against individuals and entities committing human rights violations in the Xinjiang Uyghur Autonomous Region, consistent with the Uyghur Forced Labor Prevention Act. Ms. Kikoler also urged the United States to create an independent investigative mechanism to document human rights abuses against Uyghurs, and use asylum law to protect Uyghurs fleeing China.
During the question and answer period, Chair Gallagher asked if pension funds and university endowments should enjoy tax exempt status if they invest in “companies that contribute to the [Uyghur] genocide,” even passively. Mr. Turkel agreed with this approach. Congressman Luetkemeyer also asked a question about the role of asset managers in funding human rights abuses in the Uyghur region; the panel stated that these firms help raise funds for companies that perpetrate these abuses. Congressman Ro Khanna (D-CA) asked the panel to respond to the current status of implementation of the Uyghur Forced Labor Prevention Act. Mr. Turkel praised the Act’s role in chilling US investment in China, though Ms. Kikoler said that more enforcement of the Act was needed.
Additional Select Committee Activity
Chair Gallagher also has sought to draw attention to issues of interest to the Select Committee through a series of public statements and public appearances.
• Chair Gallagher and Ranking Member Krishnamoorthi issued a statement in response to reports that the Biden Administration will require ByteDance to fully divest its ownership of TikTok. They welcomed the announcement, but sought more details on if the move would remove all government investors in the company. They stated that “TikTok, under its current ownership and control structure, is an unmitigable threat to our national security and needs to be dealt with as such.” They also urged the Biden Administration to codify the divestment of TikTok in legislation and set a precedent for “all TikToks to come.”
• Chair Gallagher, along with Representative Carlos Gimenez (R-FL), visited the port of Miami and United States Southern Command to discuss security concerns around the use of Chinese-made infrastructure technology, like cranes, to surveil US ports and China’s influence campaigns in South America.
• Gallagher visited Taiwan, where he met with President Tsai Ing-Wen and Vice President William Lai. Upon returning to the United States, Chair Gallagher stated that he wanted Americans to recognize the need “to arm Taiwan to the teeth to avoid a war.”
• Chair Gallagher and other members of the Select Committee met with CEOs of major technology companies and Hollywood studios to discuss their business relationships with China and how the United States can outcompete China, particularly on AI technology.
The Select Committee is expected to continue to have regular hearings over the course of 2023 and 2024 designed to highlight US economic and national security concerns with respect to China. Since its inception earlier this year, the Select Committee has already been influential in the ongoing policy debate in the United States over what additional steps the nation should take to respond to the economic and national security challenges posed by China. Going forward, US multinational companies doing business in China, or seeking to do so, should carefully monitor the Select Committee’s activities for insights on the future direction of US trade, investment, and national security policy towards China.