US Congress warns of “high risk for investors” in China

Joe Biden

At the beginning of the week, the US President and the Chinese head of state met for a virtual meeting.

(Photo: AP)

Washington An important body of the US Congress is pushing for drastic measures against economic ties with China. In its annual report published on Wednesday, the bipartisan US-China Economic and Security Review Commission (USCC) called for radical restrictions on business in the Chinese market.

With “growing threats to US national security,” the group said, more needs to be done to limit American investment in China. The commission, made up of democratic and republican security and economic experts, also warns of an escalation of the Taiwan conflict.

Among other things, the USCC recommends the establishment of a new test center that blocks American investments if they harm the security interests of the USA. The US regulators should also be given greater authority over financial flows to China. In the past few months, the government of US President Joe Biden banned investments in 24 listed Chinese companies. “Many more should be on the list,” says the group’s report.

Despite the tense political situation, US capital flows to China are steadily increasing, the commission notes. US participation in China’s financial markets is at an all-time high, reaching a volume of 1.2 trillion US dollars last year. This economic interdependence is “particularly worrying at the moment,” warns the USCC, given the rapidly increasing state regulation in China.

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“US companies and investors in China must be aware that they are under the control of the Communist Party,” said the panel, warning of a “high risk”.

The US Senate, one of two chambers of Congress, is already working on measures that go in a similar direction – even if many American companies are lobbying against it. A bill provides for stronger export controls to prevent critical American technology from falling into Beijing’s hands.

In particular, so-called VIE companies (VIE stands for Variable Interest Entity), which are associated with Chinese companies, see the experts as a danger. Most recently, the US Securities and Exchange Commission (SEC) criticized the opaque structure of many Chinese companies listed in the US. These take advantage of a loophole in the law in China by founding a holding company – a VIE company – in tax havens and listing them on the stock exchange abroad.

The USC is concerned about the political climate in China. “Increased repression in Hong Kong, Xinjiang and Tibet” is “combined with a growing willingness to respond to criticism from abroad with economic pressure.” In the past, China tended to avoid economic conflicts with the USA, according to the experts. “Now the US is becoming a major target for extensive government intervention.”

Video summit revealed deep trenches

On Monday, US President Biden and China’s head of state Xi Jinping spoke to each other for the first time after months of radio silence. At a video summit, Biden warned the Chinese state and party leader for “unfair market practices”.

The Taiwan conflict is also causing acute resentment between the two world powers. Beijing regards the island as part of the People’s Republic of China and wants a “reunification” of the two territories. Taiwan never belonged to the People’s Republic of China, which was newly founded in 1949. Washington suggested several times that the US could defend Taiwan in the event of an invasion. Xi did not rule out military intervention on Monday. A “peaceful reunification” is the goal, but if “separatist forces of Taiwanese independence provoke us,” he threatened, “decisive action would be taken”.

The USCC sees the USA as having an obligation to support Taiwan. Congress should provide funds to finance cruise missiles, ballistic missiles and other ammunition in the Indo-Pacific. It must be made unmistakably clear that the US would “act quickly and decisively,” says the report. The Chinese army was “close to the ability to invade Taiwan,” said the panel. Biden absolutely wants to avoid a military escalation. That is one of the reasons why he initiated the virtual meeting with Xi on Monday.

More: Life under Xi Jinping – these two books will help you understand China better



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