U.S. Rep. Patrick McHenry (R-NC), chair of the House Financial Services Committee, is cautioning U.S Treasury against regulating outbound investment to China.
In a letter to Yellen, McHenry expressed concern that any executive order to restrict outbound investment to China would prove futile in its intended effect. Instead, McHenry contends that it would serve China’s goal of limiting the influence of Western firms in Chinese markets.
“Last year, China recorded a current account surplus of $417.5 billion, the highest level since 2008. The last time an Administration tried to restrict financing against a large current account surplus country, in 2014, it failed. Do Treasury and the Administration really believe that investment restrictions will be effective this time – particularly against a surplus country that holds $3 trillion in reserves?” McHenry wrote to Yellen.
McHenry pointed out that these same restrictions failed to deter Moscow from its war in Ukraine, but also left targeted entities so unaffected that Treasury had to re-sanction them last year.
“Given Treasury’s longstanding principle that coercive measures must achieve clear objectives, it is unclear why the Administration now wants to repeat the same policies in China but expects different results. It is also unclear why the Administration believes that prohibiting know-how solely linked to investments would be more effective than comprehensively using export controls or sanctions,” McHenry added.
McHenry asked Yellen to respond to a series of related questions, including that asks which Chinese technologies have been developed as a result of U.S. investments that would be prohibited under the proposed E.O.