Tight focus is key as US hones policy to curb outbound China investment, report says

New US outbound investment restrictions – largely directed at China and often garnering strong resistance from the US business community – should avoid being overly broad and ideally fill in gaps not covered by other agencies, laws and regulations, trade experts and a White House official said on Wednesday.

When the Chips and Science Act of 2022 was signed into law last month, it not only provided US$52 billion to bolster the competitiveness of the US semiconductor industry. It also included provisions making it significantly more difficult for chip makers receiving this US funding to invest in China, starting a tightening of controls over outbound US capital and management expertise that could aid Chinese advances in weapons, surveillance and other dual-use technologies.

US President Joe Biden’s administration is still honing its approach, said Peter Harrell, the White House National Security Council’s senior director for international economics and competitiveness. It aims to enact controls that are “narrowly focused”, identify specific gaps in current legal safeguards and apply “only to specific sectors with clear national security risks”, he said.

Harrell added that inwardly focused Washington needed to draw not only on its long-standing experience with inbound investment controls – largely through the often secretive inter-agency Committee on Foreign Investment in the United States (CFIUS) – but also learn from Taiwan and South Korea, which are further along in restricting investments into China.

While some version of an outbound CFIUS is likely as US-China relations worsen and mutual suspicion soars, there is heated debate among lawmakers, companies and, more quietly, the administration, over enforcement, what form it should take and what US agency should oversee it.