On the Radar: July 25 - 28
Senate Adopts Outbound Investment NDAA Provision. On July 25, the Senate approved an amendment to the FY 2024 National Defense Authorization Act (NDAA) filed by Sens. John Cornyn (R-TX) and Bob Casey (D-PA) that would require U.S. outbound investments in certain sectors of China’s economy to be reported to the Department of the Treasury. The amendment would impose reporting requirements on transactions with entities in China, Russia, Iran and other countries of concern in sectors with national security implications—including semiconductors, AI and other dual-use technologies. The Senate is expected to vote on final passage of its version of the NDAA by July 29. It remains unclear whether the amendment will remain in the bill following a conference process when the House and Senate bills are reconciled, as multiple House Republicans have criticized the amendment’s scope and lack of an investment blocking mechanism. Rep. Patrick McHenry (R-NC), chair of the House Financial Services Committee, noted the amendment would be “cumbersome for capital allocation internationally.” Rep. Andy Barr (R-KY), who is reportedly drafting an outbound investment bill that would prohibit certain U.S. investments in Chinese firms, also noted that the Senate amendment is not “the right approach.” The Biden administration has yet to confirm whether it will implement its own outbound investment executive order, which we expect to be tailored to specific industries, including AI and semiconductors.
China Replaces Foreign Minister. On July 25, China’s Standing Committee of the National People’s Congress appointed Wang Yi, China’s former foreign minister and most senior foreign policy official by party rank to replace Qin Gang as minister of foreign affairs. Minister Yi’s appointment comes as former Minister Gang has not been seen in public since June 25 and was absent from meetings with visiting U.S. Secretary of the Treasury Janet Yellen and former U.S. Secretary of State Henry Kissinger, creating speculation that his absence may be politically motivated. The appointment of Yi also occurred during an unusually scheduled meeting of the Standing Committee, which typically gathers at the end of the month. The CCP has not provided a reason for Gang’s removal. While the CCP previously issued a statement attributing Gang’s absence to his health, it has since erased the statement from its website. Notably, Gang will remain a member of China’s State Council, leaving open the possibility that any undisclosed contention between Gang and CCP leadership may not prevent him from returning to public office in the future.
China Select Committee Investigating Venture Capital Firms’ China Investments. On July 19, the House Select Committee on Strategic Competition Between the United States and the Chinese Communist Party sent letters to four U.S. venture capital firms expressing “serious concern” with the firms’ investments in Chinese companies involved in sectors with potential national security applications, including semiconductors, AI and quantum computing. The letter was sent to GGV Capital, GST Ventures, Qualcomm Ventures and Walden International, firms that the letter notes made significant investments in Chinese technology companies from 2015–2021. Reps. Mike Gallagher (R-WI) and Raja Krishnamoorthi (D-IL), respective chair and ranking member of the committee, noted in the letter that Qualcomm Ventures made 13 investments in Chinese AI companies from 2015–2021, among other investments, adding that “like AI, the domestic development of semiconductors is a top priority of the Chinese Communist Party ... [and] essential for other advanced dual use technology.” The letter also identified GGV Capital’s investment in China-based facial recognition software company Megvii as “actively” supporting the surveillance of Uyghurs. The firms are required to respond to the letter by July 26.
G7, EU Urge China to Enforce UN Sanctions on North Korea. On July 21, The European Union, Group of Seven (G7) countries—the United States, Canada, France, Germany, Italy, Japan and Britain—and Australia, New Zealand and South Korea sent a letter to China’s ambassador to the United Nations, Zhang Jun urging China’s government to cease allowing the use of Chinese territorial waters for blacklisted oil tankers engaged in illicit trade with North Korea. The letter was sent as China is planning to send a delegation including Li Hongzhong, CCP Politburo member and other senior CCP officials to North Korea for a ceremony marking the 70th anniversary of the end of the Korean War on July 27. The letter reportedly contains satellite images of multiple tankers previously blacklisted by the UN Security Council for sanctions evasion anchored in China’s Sansha Bay, and urges the Chinese government to “do more to identify and prevent these vessels from anchoring or loitering in Chinese territorial waters.” The letter also notes that companies providing services to sanctioned vessels in Chinese waters are “exposing themselves to sanctions risk” and “risk being publicly identified as contributing to sanctions evasion.”
Biden Administration Reportedly Considering Sanctions Relief in Exchange for Chinese Cooperation on Fentanyl. Unnamed Biden administration officials have reported the administration is considering lifting sanctions imposed during the Trump administration on China’s Institute of Forensic Science (IFS) in exchange for China’s cooperation in joint counternarcotics efforts. This follows Secretary of State Antony Blinken’s visit to China in June, during which Secretary Blinken discussed with senior CCP officials creating a bilateral working group to address the fentanyl crisis. The IFS sanctions were applied in January 2021 due to the IFS’ involvement in the CCP’s mass surveillance of Uyghurs, with Chinese officials reportedly stating that lifting the sanctions is a precondition for China to enter into a working group focused on narcotics. The Biden administration has yet to issue a statement on the sanctions, with State Department Spokesperson Matt Miller noting the U.S. government continues “to call on the PRC to stop the flow of fentanyl precursor chemicals from China to the cartels.” Action on the IFS sanctions is unlikely to occur in the near term given the bipartisan backlash likely to follow any relief for Chinese entities complicit in China’s oppression of Uyghur groups.
Highlight Reel: July 11 - 25
U.S. Special Climate Envoy John Kerry Visits Beijing. From July 16 to 19, U.S. Special Climate Enjoy John Kerry visited Beijing to discuss joint efforts to combat climate change. Climate talks came to a halt last summer following then-Speaker Nancy Pelosi’s trip to Taiwan. Despite this, Kerry noted the mood during the talks was “very, very positive.” Kerry’s time in Beijing consisted of several talks with Chinese officials, including his climate counterpart in China, Xie Zhenhua. During a meeting with Chinese Premier Li Qiang, Kerry said, “now we’re in a place where because of the efforts of President Biden and President Xi to try to stabilize the relationship, we can now I hope, make progress between now and the meeting in the UAE, in December, of COP 28.” Kerry also met with Wang Yi, a Chinese diplomat, to discuss more broadly the stability of U.S.-China relations, noting that “our hope is now that this could be the beginning of a new definition of collaboration and the capacity to resolve the differences between us.” Both the United States and China remain committed to combatting climate change.
Department of State
Blinken Speaks with China’s Envoy, Wang Yi. On July 13, Secretary of State Anthony Blinken had a second meeting with China’s envoy, Wang Yi to further discuss U.S.-China relations. The talks were “candid and constructive,” according to a spokesperson for the Department of State. “The meeting was part of ongoing efforts to maintain open channels of communication to clarify U.S. interests across a wide range of issues and to responsibly manage competition by reducing the risk of misperception and miscalculation.” China’s foreign ministry also made a statement on the talks between Yi and Blinken that implied the United States is to blame for the unstable relationship with China. The statement also said Yi suggested the United States “stop suppressing China in economy, trade science and technology,” while reinforcing Beijing’s “stern position” in Taiwan. The two agreed to continue constructive communications. The discussion occurred one day after the United States announced the breach of several agency officials’ email accounts, including that of Secretary of Commerce Gina Raimondo. This led Blinken to touch on U.S. cybersecurity concerns during their discussion.
Department of Commerce
Secretary Raimondo Meets with Top U.S. Chip Producers. On July 17, top Biden administration officials, including U.S. Secretary of Commerce Gina Raimondo and National Security Advisor Jake Sullivan, met with Intel, Qualcomm and Nvidia. The meeting came amid the chip industry’s push to defend its sales in China, which accounted for $180 billion in semiconductor purchases. The U.S. chip manufacturers are concerned that policymakers may seek to wall off the Chinese market to protect U.S. manufactured technology. The Semiconductor Industry Association urged that “overly broad” restrictions on U.S. chip sales to China “risk diminishing the U.S. semiconductor industry’s competitiveness, disrupting supply chains, causing significant market uncertainty, and prompting continued escalatory retaliation by China.” The chip manufacturers’ meeting with administration officials also focused on Raimondo’s oversight of the CHIPS Act semiconductor subsidy program. The meeting comes on the heels of the Senate vote on the inclusion of Sen. John Cornyn’s (R-TX) outbound investment amendment to the National Defense Authorization Act (NDAA) that will occur on July 25.
Department of the Treasury
Secretary Yellen Speaks to the Impact of Beijing’s Economic Slowdown. In a July 17 interview, Treasury Secretary Janet Yellen said the U.S. economy is “on a good path” and that she does not currently expect a recession. Despite this, Yellen raised concerns with China’s weaker-than-expected Q2 GDP and declining consumer spending. Yellen noted that “many countries do depend on strong Chinese growth to promote growth in their own economies, particularly countries in Asia—and slow growth in China can have some negative spillovers for the United States.” Yellen characterized China’s post-COVID-19 economic rebound as “relatively slow,” with “consumers … focused on building back their savings buffers.” Yellen’s comments came on the sidelines of a G20 ministerial meeting in Gandhinagar, India. While at the meeting, Yellen stated that the United States was open to the “de-escalation” of tensions with China but did not see tariff reductions as a piece of that strategy.
On the Calendar: July 25 - 31
House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party Hearing
Commanding Heights: Ensuring U.S. Leadership in the Critical and Emerging Technologies of the 21st Century
July 26, 7:00 p.m.
House Energy and Commerce Subcommittee on Innovation, Data, and Commerce Hearing
Self-Driving Vehicle Legislative Framework: Enhancing Safety, Improving Lives and Mobility, and Beating China
July 26, 10:30 a.m.
The Wilson Center
A Conversation on the Indo-Pacific Economic Framework with Secretary of Commerce Gina Raimondo
July 25, 12:30 p.m.
U.S.-China Proximate Military Operations in the Maritime, Air and Space Domains
July 26, 10:00 a.m.