U.S. GOVERNMENT PUBLISHING OFFICE

55–922PDF WASHINGTON : 2024

EXAMINING THE FLOW OF U.S. MONEY INTO 

CHINA’S MILITARY MIGHT 

HEARING 

BEFORE THE

COMMITTEE ON FOREIGN AFFAIRS 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED EIGHTEENTH CONGRESS 

SECOND SESSION 

JANUARY 17, 2024 

Serial No. 118–76 

Printed for the use of the Committee on Foreign Affairs 

( 

Available: http://www.foreignaffairs.house.gov/, http://docs.house.gov, 

or http://www.govinfo.gov 
(II) 

COMMITTEE ON FOREIGN AFFAIRS 

MICHAEL T. MCCAUL, Texas, Chairman 

CHRISTOPHER H. SMITH, New Jersey 

JOE WILSON, South Carolina 

SCOTT PERRY, Pennsylvania 

DARRELL ISSA, California 

ANN WAGNER, Missouri 

BRIAN MAST, Florida 

KEN BUCK, Colorado 

TIM BURCHETT, Tennessee 

MARK E. GREEN, Tennessee 

ANDY BARR, Kentucky 

RONNY JACKSON, Texas 

YOUNG KIM, California 

MARIA ELVIRA SALAZAR, Florida 

BILL HUIZENGA, Michigan 

AUMUA AMATA COLEMAN RADEWAGEN, 

American Samoa 

FRENCH HILL, Arkansas 

WARREN DAVIDSON, Ohio 

JIM BAIRD, Indiana 

MICHAEL WALTZ, Florida 

THOMAS KEAN, JR., New Jersey 

MICHAEL LAWLER, New York 

CORY MILLS, Florida 

RICH MCCORMICK, Georgia 

NATHANIEL MORAN, Texas 

JOHN JAMES, Michigan 

KEITH SELF, Texas 

GREGORY MEEKS, New York, Ranking 

Member 

BRAD SHERMAN, California 

GERALD E. CONNOLLY, Virginia 

WILLIAM KEATING, Massachusetts 

AMI BERA, California 

JOAQUIN CASTRO, Texas 

DINA TITUS, Nevada 

TED LIEU, California 

SUSAN WILD, Pennsylvania 

DEAN PHILLIPS, Minnesota 

COLIN ALLRED, Texas 

ANDY KIM, New Jersey 

SARA JACOBS, California 

KATHY MANNING, North Carolina 

SHEILA CHERFILUS-MCCORMICK, Florida 

GREG STANTON, Arizona 

MADELEINE DEAN, Pennsylvania 

JARED MOSKOWITZ, Florida 

JONATHAN JACKSON, Illinois 

SYDNEY KAMLAGER-DOVE, California 

JIM COSTA, California 

JASON CROW, Colorado 

BRAD SCHNEIDER, Illinois 

GABRIEL AMO, Rhode Island 

BRENDAN SHIELDS, Staff Director 

SOPHIA LAFARGUE, Staff Director 
(III) 

C O N T E N T S 

Page 

WITNESSES 

Pottinger, Hon. Matthew, Chairman of FDD China Program, Foundation 

for Defense of Democracies .................................................................................. 6 

Harrell, Honorable Peter, Nonresident Fellow, Carnegie Endowment for International Peace ...................................................................................................... 15 

APPENDIX 

Hearing Notice ......................................................................................................... 56 

Hearing Minutes ...................................................................................................... 58 

Hearing Attendance ................................................................................................. 59 

STATEMENT SUBMITTED FOR THE RECORD FROM REPRESENTATIVE 

CONNOLLY 

Statement submitted for the record from Representative Connolly .................... 60 

WITNESS TESTIMONY SUBMITED FOR THE RECORD FROM MR. MATHENY 

Witness testimony submitted for the record from Mr. Matheny ......................... 62 

RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD 

Responses to questions submitted for the record .................................................. 67 

(1) 

EXAMINING THE FLOW OF U.S. MONEY INTO 

CHINA’S MILITARY MIGHT 

Wednesday, January 17, 2024 

HOUSE OF REPRESENTATIVES, 

COMMITTEE ON FOREIGN AFFAIRS, 

Washington, DC. 

The committee met, pursuant to notice, at 10:15 a.m., in room 

210, House Visitor Center, Hon. Michael McCaul (chairman of the 

committee) presiding. 

Chairman MCCAUL. The Committee on Foreign Affairs will come 

to order. The purpose of this hearing is to examine the flow of U.S. 

capital into China’s military and technological development. 

I now recognize myself for an opening statement. I want to thank 

the witnesses for being here as well. Unfortunately, one of our toptier witnesses who was going to testify, Mr. Matheny, came down 

with COVID this morning, so I hope he gets better. But we are delighted to have the two of you. 

The Chinese Communist Party’s goals and actions are a clear 

and present danger to the security interests of the United States 

and our allies. We are in a generational competition with a determined adversary set on upending the global balance of power. 

Technology is at the center of this competition, and the CCP is 

using it as a weapon for its military and surveillance state. These 

technologies can be used to advocate and safeguard democracy, or 

they can be used for subversion and oppression. 

We must understand that whoever controls the best technology 

will likely prevail in this great power competition. And while we 

can restrict China’s access to U.S. critical technology through export controls, we cannot stop big investors from using their money, 

know-how, and network to help build highly advanced technology 

companies in China. 

Regrettably, U.S. money is fueling the CCP war machine and 

surveillance state. Look no further than the CCP’s dystopian oppression of the Uyghurs and the successful hypersonic missile test 

which circled the globe and landed with precision. This was built 

on the backbone of U.S. technology. 

The ranking member and I were disturbed that we have no effective tools to stop these key investments. They harm U.S. national 

security and endanger our partners and allies like Taiwan. And we 

also want to congratulate Taiwan on their recent elections and to 

the DPP. 

So, the ranking member and I acted. In November, this committee, on a unanimous bipartisan basis, passed the Preventing 

Adversaries from Developing Critical Capabilities Act. This bill has 

been one of the most important steps this committee has taken to 
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protect U.S. national security and counter the CCP. This bill may 

also be one of the most bipartisan efforts that we have worked on. 

This effort spans the past two Administrations. It was then-Secretary Mike Pompeo who urged in 2020 to stop the flow of U.S. 

money into national security sectors in China. The Trump national 

security team supports this legislation, but so too does the Biden 

Administration. More recently, the Biden Administration took the 

idea and developed an executive order targeting outbound rule. 

While Ranking Member Meeks and I and a growing number of 

members, as well as outside groups like Heritage, Hudson, and 

American Compass, plan to get this bill signed into law. We 

thought we had it done in the National Defense Authorization. It 

got pulled. We need to get this new version that was introduced by 

the ranking member and myself signed into law. We cannot wait. 

This hearing today plays an important role in that process. The 

witnesses today were selected by both of us. This hearing should 

help clear up a lot of misconceptions about the threat, current situation, and examine tangible solutions. 

It should come as no surprise that China’s military and surveillance state are exploiting loopholes in U.S. policy to access billions 

of U.S. investment dollars and expertise. We know that U.S. investment has not democratized China, and companies which are controlled by the CCP have no power over the applications of their 

technology. The CCP can direct it to be used for military or surveillance purposes. And we know China’s military-civil fusion strategy 

undermines an entity-by-entity sanctions approach and instead requires country-wide prohibitions for key technologies. 

Ranking Member Meeks and I requested that the Treasury Department decide whether to sanction Hikvision, a CCP surveillance 

company contributing to the Uyghur genocide, but Treasury decided not to sanction the company. The weakness of the sanction 

model, is that Treasury Department will not sanction. 

Our witnesses today can provide further evidence on these points 

and articulate why an outbound, forward-looking, sector-based regime is necessary. And we’ll see, whether Republican or Democrat, 

those that examine China objectively, analytically, and realistically 

have reached the same conclusion. And while existing tools, such 

as sanctions, have an important role, they simply cannot be a substitute for an outbound investment regime that is authorized by 

Congress. 

And that is our goal: restricting key outbound investments. And 

a whole-of-government approach ensures America’s national security comes first. 

And with that, the chair now recognizes the ranking member. 

Mr. MEEKS. Thank you. Thank you, Chairman McCaul, for organizing this important and timely hearing. I also want to thank our 

distinguished witnesses for appearing before the committee. 

Our discussion today is critical for America’s national security 

and our strategic competition with China. But let me also just say 

to the Chairman: I want to thank you for working—we have 

worked very closely together to get this bill passed in a bipartisan 

way. And I also want to thank our staffs who worked very closely 

to jointly organize this hearing, which we worked on collectively 

and together, which I hope advances the joint work that we have 
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done together to pass our bipartisan bill, H.R. 6349, the Preventing 

Adversaries from Developing Critical Capabilities Act, out of committee. 

Today, what we are doing, we are demonstrating to the United 

States, to the country, that when it comes to issues of critical importance to American interests, Republicans and Democrats can 

come together to solve big problems. 

We know that Beijing is developing advanced technologies, critical for military, intelligence, surveillance, and cyber-enabled capabilities, with dangerous implications for our security. We also know 

that Beijing is busy synergizing its civilian and commercial sectors 

with its military and defense industrial sectors. And we also know 

that Beijing is intent on exploiting, stealing, and diverting the 

world’s cutting-edge technologies to fuel its military buildup. So, we 

should not be making Beijing’s job easier by having Americans 

fund the very PRC companies that are developing these technologies. 

Despite a bipartisan, bicameral desire to address this significant 

national security challenge, for several years now, Congress has 

not coalesced around a solution. But we are doing so now. And that 

is why I want to give credit, in a bipartisan way, to Mr. McCaul 

in what we are doing collectively together. And that is why I want 

to give credit to the Biden Administration for tackling this challenge. 

On August 9th of 2023, President Biden issued a game-changing 

executive order on outbound investment that calls for prohibitions 

and notification requirements on specific types of American investments in China, or in certain Chinese companies that develop or 

produce semiconductors, quantum computers, and artificial intelligence applications. As we speak, the Biden Administration is busy 

establishing a process and crafting regulations to implement the 

executive order. 

But that does not mean that we, in the U.S. Congress, that we 

are off the hook. We need to create a statutory framework for the 

executive order, provide the Administration with the resources and 

tools that are necessary to effectively implement an outbound 

screening program, and provide certainty to our allies in the private sector that Congress stands firmly behind these carefully tailored restrictions. That is our responsibility. We should not shrink 

from that. 

An outbound regime that combines transparency with prohibitions on investments in the most sensitive technology sectors is the 

very best way to safeguard the United States’ national security 

while also maintaining open global capital flows and the United 

States’ preeminent position in global financial markets. The only 

legislation that balances these equities, the only one that I think 

has that true balance, is H.R. 6349. It is the most effective and robust legislative solution. 

So, I look forward to the discussion today and hearing from our 

witnesses about how best to address this challenge. Thanks again 

for working so closely, Chairman McCaul, and our staffs. And I 

yield back. 

Chairman MCCAUL. I thank the ranking member. I always think 

we’re stronger as a nation and a Congress when we are united on 
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these issues and speak with one voice to our adversaries, like communist China. 

So, we have a distinguished panel here today. First, Mr. Honorable Matt Pottinger is Chairman of the China Program at the 

Foundation for Defense of Democracies and a distinguished visiting 

fellow at the Hoover Institution. From 2019 to 2021, he served as 

the U.S. Deputy National Security Advisor. Thank you, sir, for 

being here today. 

Mr. Peter Harrell is a nonresident fellow of the Carnegie Endowment for International Peace. From January 2021 through 2022, he 

served at the White House as Senior Director for International Economics. We are grateful for you being here today. 

The Chair now recognizes Mr. Pottinger for his opening statement. 

STATEMENT OF HON. MATTHEW POTTINGER, CHAIRMAN OF 

FDD CHINA PROGRAM, FOUNDATION FOR DEFENSE OF DEMOCRACIES 

Mr. POTTINGER. Chairman McCaul, Ranking Member Meeks, and 

distinguished members of the committee, I am grateful for the opportunity to speak to you today. 

We’re at a juncture now where the scales of global power are beginning to tip toward America’s adversaries, in part because of the 

leverage that we are providing them. American know-how and capital are seeds and fertilizer that have helped foster the growth of 

China’s military might. U.S. companies and investment funds have, 

sometimes inadvertently, sometimes carelessly, helped to underwrite and expedite the modernization of the People’s Liberation 

Army and China’s high-tech surveillance and intelligence apparatus. 

Americans do not typically invest with the intention of harming 

U.S. national security, but that is often the result when they put 

their capital into Chinese companies that are working with dualuse technologies, those technologies that have the potential for 

military as well as commercial applications. 

It is hard and increasingly meaningless to try to distinguish between a Chinese enterprise with commercial aims and one with 

military objectives, and it is hard because Beijing actually designed 

it that way. Corporate independence in today’s China is an illusion. 

The truth is that the single-party dictatorship that rules China has 

powerful authorities and influence over all entities, whether private-or state-owned, civilian or military, domestic or even foreign. 

Beijing has built a business and regulatory ecosystem to facilitate 

and mandate the transfer for dual-use technologies to military and 

intelligence programs. 

China’s military-civil fusion strategy, for example, exists for that 

very purpose. So does China’s National Intelligence Law of 2017, 

which compels ‘‘all‘‘ organizations and citizens to secretly support, 

assist, and cooperate with China’s espionage activities. Chinese 

Communist Party organizational cells, rather than entrepreneurial 

founders, call the shots now from inside many of China’s most famous technology companies. 

Some American investors try to conduct due diligence to reassure 

themselves about where their money and technology are ultimately 
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ending up inside China, but that, too, is an increasingly fraught exercise. Beijing is running a ‘‘rectification campaign’’ to shut down 

or assert heavy influence over research, consulting, and due diligence firms operating in China. So no wonder that U.S. investors 

who are seeking a return on their capital are often blind to the 

strategic costs that they are incurring for America’s national security and prosperity. I have listed some concrete examples of how 

that plays out in my written testimony, which I have submitted for 

the record. 

Allow me to close with just a handful of recommendations. Congress has an opportunity to build on the initial steps taken by the 

Trump and Biden Administrations to prevent U.S. capital from 

fueling China’s military and intelligence capabilities. 

First, Washington should take a sectoral approach, rather than 

merely an entity-based approach. The Treasury Department has 

demonstrated since at least 2021 that it is disinterested in using 

even its existing narrow authorities to limit investment in Chinese 

military-linked companies. 

And in fairness to the Treasury Department, tackling the problem on a company-by-company basis would be a resource-intensive 

and gargantuan task. Chinese firms commonly dodge U.S. controls 

with shell companies and complex subsidiary arrays, and it would 

be better, simpler, and less resource intensive to apply new rules 

to entire sectors. 

Second, the rules should cover all strategic and military technologies. The Biden Administration’s draft rules are a good start. 

They are designed to impact semiconductors, artificial intelligence, 

and quantum computing. Proposed bipartisan legislation also seeks 

to strengthen outbound investment screening in the field of 

hypersonics. Congress and the Administration should consider adding other technologies listed as ‘‘critical and emerging technologies,’’ as the White House puts it, and as outlined by the National Science and Technology Council. These include biotech, directed energy, space technologies, advanced manufacturing, autonomous systems and robotics, and even some green energy technologies. 

Third, apply rules to all kinds of investments. The Biden Administration rules, as currently written, would impact venture capital, 

private equity, greenfield, joint ventures, and certain debt financing transactions. And this is very welcome. Congress should also 

seek to cover investments in publicly listed companies. 

Fourth, include existing transactions, not just future ones, within 

the scope of legislation. And, finally, seek to block investments and 

not merely review them. Mandating transparency for U.S. investments in to China is a welcome step to better understand the scope 

of the problem, but Congress should also consider broadening 

transparency to full prohibitions on investments in targeted sectors. 

Thanks very much for inviting me to deliver this testimony. 

[The statement of Mr. Pottinger follows:] 
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Chairman MCCAUL. Thank you, Mr. Pottinger. The chair now 

recognizes Mr. Harrell for his opening statement. 

STATEMENT OF HON. PETER HARRELL, NONRESIDENT FELLOW, CARNEGIE ENDOWMENT FOR INTERNATIONAL PEACE 

Mr. HARRELL. Chairman McCaul, Ranking Member Meeks, honorable members of the Committee, it is an honor for me to testify 

in front of the Committee today on one of the most important aspects of America’s strategic competition with Beijing: managing the 

flow of American capital to China. I have submitted a statement 

for the record and will confine my in-person testimony to just several points. 

In August of last year, with President Biden’s issuance of Executive Order 14105, the Administration took an important step toward regulating U.S. investment in China’s AI, semiconductors, 

and quantum computing sectors. EO 14105 is intended to begin addressing the risk that certain U.S. investments can help China develop an edge over the U.S. and our partners in key technologies. 

Over the last decade, for example, we saw comparatively early 

stage U.S. investment in a number of Chinese technology firms 

that later engaged in problematic activities. An example of this is 

Chinese surveillance technology firm SenseTime, which attracted 

U.S. investment as early as 2017, but only in 2019 did the U.S. 

Government understand that SenseTime was engaging in China’s 

surveillance in Xinjiang, triggering export controls on the company. 

Unlike an outbound investment regime that focuses on sanctions 

against specific Chinese companies—which would require the U.S. 

Government to know up-front every Chinese firm that is problematic, a virtually impossible task given the scale of China’s economy 

and the civil-military fusion doctrine in China—a sectoral outbound 

investment regulation can limit risky investment in early stage 

Chinese companies, as well as direct U.S. investments in those sectors that pose long-term risk to U.S. national security. 

While Executive Order 14105 is an important authority to address the risks posed by U.S. investments in strategic technologies 

in China, it is still vital for Congress to act. Legislation along the 

lines of H.R. 6349, the Preventing Foreign Adversaries from Developing Critical Capabilities Act, which Chairman McCaul, Ranking 

Member Meeks, you and other Members of Congress have introduced and have pushed through this committee, would put U.S. investment restrictions on a permanent statutory foundation, signal 

Congress’s agreement that the U.S. needs a targeted regime to regulate U.S. investment in a handful of high-tech sectors, and 

strengthen and expand on the Administration’s initial action. 

As Congress acts, I urge you to do so in a way that reinforces 

rather than undermines the regulatory processes that are already 

underway, as H.R. 6349 would do, reinforcing and expanding on already-existing regulatory processes. 

While I understand the legitimate desire by some members of 

this committee and many Members of Congress for a more expansive approach than is in H.R. 6349, I am also cognizant that regulating U.S. investment in specific Chinese sectors is a new endeavor, and it is appropriate for the focus today to be on the most important and most critical technology sectors. There is going to be 
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a learning curve, a need for agencies and companies to build expertise, and a risk of unintended consequences. 

Legislation had a very different set of goals. For example, it 

would cover a hugely different number of sectors, would risk actually undermining progress by forcing a restart of rulemaking, overtaxing agencies, and creating confusion for the corporate sector and 

American allies. Congress should start with a tailored and scoped 

approach, focused on appropriate sectors where we know there are 

problems. And, of course, Congress can later add to the program 

if circumstances dictate. 

The final point I want to make is in response to arguments that 

restricting U.S. investment in China somehow undermines our own 

free market principles and will weaken U.S. influence over China’s 

corporate sector. The U.S. tried, going back to the 1990’s, to use 

economic engagement with China to make China more like the 

U.S. and to pool Chinese companies and Chinese society toward our 

direction. 

What we have found is that, under President Xi Jinping, that 

strategy simply does not work. The Chinese State, not American 

investors, ultimately tells Chinese companies in strategic sectors 

what to do. With respect to China, a geopolitical and economic competitor, we need to accept that we will have to more actively manage the economic relationship to make sure that it serves American 

national security interests and not simply the economic interests of 

American companies. 

That does not mean cutting off all, or even most economic ties, 

but it does mean that, where we see a pattern and practice of U.S. 

investment helping China grow critical technologies, the U.S. Government has a legitimate regulatory interest. 

Thank you, members of the Committee, for your focus on this 

issue, and I look forward to your questions. 

[The statement of Mr. Harrell follows:] 
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Chairman MCCAUL. Thank you, Mr. Harrell. Let me just say 

first, you know, I have been studying this issue for quite some 

time. 

Mr. Pottinger, you were the architect of the Trump Administration’s China policy. I was in full agreement. In fact, your team was 

the one that came to me, and Secretary Pompeo, and National Security Advisor O’Brien regarding the CHIPS Act that we were able 

to pass to get off the supply chain that threatens our national security issue. But when I looked at the way Treasury works with sanctions on the entity approach, as you mentioned, versus the sectorbased approach, it seemed to make more and more sense to me. 

I had a discussion with Undersecretary Estevez of the Bureau of 

Industry and Security. And he said instead of just providing a 

sanction on a company, and then China will turn around and call 

it something else the next day or take it off the books, the sanction 

has no effect. And they are very smart about this. 

So we started talking about this sector-based approach, and the 

key sectors are the semiconductors, AI, quantum, hypersonics, 

high-performance computing. And to your point, Mr. Harrell, we 

know these are the sectors that go right into the PLA’s military 

war machine or civil-military fusion. So if we have a prohibition 

based on the sector, to me, that seems to be more effective than 

this entity-based approach that can change overnight. 

I want to get your thoughts on that. 

Mr. POTTINGER. Mr. Chairman, I agree with Peter’s opening remark on that very point. I think your point was that it is much 

simpler. It is less confusing for American businesses. It is less resource intensive. 

That is not to say that I do not think that the Treasury Department should have authorities to target specific entities, but a sector-by-sector approach is just much more clear-cut. It allows for the 

compliance teams at various American financial institutions and 

investment funds to simply adjust and not to get caught in this 

very complex web of subsidiaries and shell companies. 

The Treasury Department has had the authority to target Chinese military-affiliated companies going all the way back to late 

2020. President Trump signed a couple of executive orders that 

gave them that authority. President Biden reaffirmed with some 

changes, his own executive order to that effect. 

But since then, I think only 68 companies have been added to the 

list of prohibited Chinese firms for American investment, and I can 

tell you that the galaxy of Chinese entities that are involved in 

China’s military modernization is many, many orders of magnitude 

greater than the number 68. 

Chairman MCCAUL. That is very good. So when you look at export controls, this committee has jurisdiction over that as well, but 

it seems to me that alone is not going to solve this problem, and 

that is dual-use technologies. 

I remember prosecuting the Johnny Chung case of the money 

that was coming from China, military intelligence, China air space, 

funneled through his Hong Kong bank accounts to influence the 

Presidential election. Why? Because they wanted the satellite technology, aerospace. They also wanted to become part of the WTO, 
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and guess what? They got all of it. And that was 1997. Where are 

they today? 

So, I think using both the export control laws that we have that 

Mr. Meeks and I worked on, but also the sector-based approach on 

capital flows going into China, that combination seems to be a powerful one, in my opinion. 

Mr. POTTINGER. I agree. And I commend the bipartisan spirit reflected today in Congressman Meeks’ remarks, as well. 

Chairman MCCAUL. I do not know if you have noticed, it is a little rare these days. Mr. Harrell, just one thing, you know, defining 

technologies, like advanced semiconductors, AI, or quantum, we did 

this with AI. In terms of the business community understanding 

what we are talking about when we talk about a sector, can you 

elaborate on that? 

Mr. HARRELL. Absolutely, Mr. Chairman. Obviously, in implementing legislation like this or the Biden Administration’s executive order, you are going to need a rulemaking process that is going 

to lay out in some detail exactly what parts of the semiconductor 

ecosystem we are talking about here, the most advanced, and what 

parts of the AI ecosystem we are talking about here, not just kind 

of customer service chatbots but the high-end models that we are 

actually concerned about. But the thing is that we have that experience in export controls where we have had to define a lot of different kinds of semiconductor technology. The business community 

understands that regime, and they will understand that regime 

when, with appropriate tailoring, you move it over to an investment, a complementary investment restriction regime. 

Chairman MCCAUL. Thank you. The chair recognizes Mr. Meeks. 

Mr. MEEKS. Thank you, Mr. Chairman. I thank both of you for 

your statements. I think that they were excellent and show the bipartisan nature of both Administrations on this particular issue, 

which I think is extremely important. 

You know, in recent years, consecutive Administrations and congresses have strengthened the United States’ foreign investment 

review and export control authorities to bolster national security 

protection. But, Mr. Pottinger, I will start with you, you know, because I hear some things come back and forth to me about our existing CFIUS process, sanctions and export controls. Can you tell 

us what are some of the critical problems that an outbound regime 

should tackle that cannot be addressed through CFIUS sanctions 

or export control regimes? 

Mr. POTTINGER. Thank you, Congressman. You know, it is interesting that the money that is represented by, you know, big name 

private equity and venture capital firms in the United States represents more than just the dollar signs. It represents know-how. It 

represents networks to talent and board members and technologies 

that reside in the portfolios of these venture capital firms that then 

work at the service of other companies in their investment portfolios, including companies in China. 

So if we look at something like export controls are kind of a lagging indicator. It takes a long time for us to even recognize new 

technologies that are being developed in China, for example, using 

U.S. capital and some U.S. know-how. By the time those technologies mature and are ready to be harvested by smart people 
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scouting technology for the Chinese intelligence agencies or for the 

Chinese military, the cat is already out of the bag, the horse is out 

of the barn, whatever farm animal, you know, analogy you like; it 

is too late. 

And so I think the reason that we were focused, particularly in 

2020 during the Trump Administration and Peter and colleagues 

who are currently and recently in the Biden Administration have 

been focused on trying to close that loophole to actually capture 

technologies before those seeds are planted and before they can 

sprout into something that is going to be weaponized against us. 

Mr. MEEKS. So let me just followup that up with Mr. Harrell. So 

those gaps, can you tell us specifically how the Biden Administration’s outbound executive order addresses them? 

Mr. HARRELL. Absolutely, Congressman. And thank you for the 

question. Let me give a hypothetical example that I think will help 

illustrate the gap here that we are all trying to close. 

So since October 2022, the Biden Administration, with strong 

support from Congress, has imposed pretty tough export controls 

on China in semiconductors where U.S. companies cannot send 

tools and designs for high-end semiconductors to China. How is 

China responding to this? Well, they are trying to build an indigenous capability for those same tools and designs. 

Export controls alone do not provide a tool to prevent an American venture capitalist from saying, you know what, that is an interesting opportunity. I might not be able to ship a tool over to 

China, but I could invest $20 million in this upstart Chinese firm 

that is trying to build that same tool or that same design here in 

China. And then, as Matt says, helping that Chinese firm recruit 

talent, helping that Chinese firm build contacts in the industry to 

help them grow, because none of that expertise is technology. The 

export control just focuses on the technology, and what we are worried about is that the capital can still go over there to help them 

innovate around our export controls, which is why I think an approach like that in your bill, sir, would be helpful in closing that 

gap. 

Mr. MEEKS. Thank you. And I will try to get this in real quick 

because the Biden executive order identifies three sectors that are 

critical for the military, intelligence, and surveillance or cyber-enabled capabilities of the PRC that could cause or pose a national 

security threat to the United States: semiconductors, microelectronics, and quantum information. 

So either Mr. Pottinger or Mr. Harrell, in the short time that I 

have or do not have, what are the benefits of utilizing a sectorbased approach for countries of concern instead of having a caseby-case review or a company-by-company based approach to address outbound investment? 

Mr. HARRELL. Just very briefly, Congressman. I actually think 

there is a helpful lesson again from export controls. So when Matt 

was in the White House, the Trump Administration took very important actions against a couple of Chinese technology firms, like 

Huawei Technologies, limiting exports from Huawei. What we have 

seen since is that China, of course, sets up lots of front companies 

and other companies to get that technology that Huawei then 

couldn’t get, which is why in October 2022, with its export controls, 
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the Biden Administration expanded beyond this company-by-company approach to go after semiconductors going to China as a 

whole, and I think that lesson in how China evaded the export controls shows why, in the investment regime, as well, we should have 

a sectoral and not just a company-by-company approach. 

Chairman MCCAUL. The gentleman yields. The chair recognizes 

Mr. Smith. 

Mr. SMITH. Thank you very much, Mr. Chairman. Thank you for 

your bill, 6349, you and Ranking Member Meeks, an excellent piece 

of legislation, and I do hope it becomes law sooner rather than 

later and then is faithfully implemented. So often we get great bills 

passed, and I do not care who is in the White House, implementation falls far short. 

But let me just say, you know, often we quote the fact that, you 

know, there was a famous quote that came out of the Soviet Union: 

we’ll hang the West and they’ll sell us the rope. That has never applied to the Soviet Union. It applies to China, especially under Xi 

Jinping. I was one of those who led the effort against MFN 

delinking of human rights. I believe when Clinton delinked MFN 

from human rights on May 26, 1994, that was a catastrophic gamechanger for the dictatorship, and ever since they have believed, and 

maybe rightfully, with some exceptions, that they can do whatever 

they want and no sanctions will be forthcoming that are meaningful. 

I held hearings on not allowing China in the WTO, believing that 

they would change the WTO and not the other way around. And 

it is my sense that that has been somewhat vindicated, that view. 

And we have had hearings over the years, many of them. I have 

chaired 97 hearings on human rights abuse in China; we just 

counted them up. I am shocked that we still have not learned, and 

that is why this bill is so important, we still have not learned that 

they will do everything they can to take anything we sell, particularly in the area of electronics and really high tech, and use it dual 

use, use it for the military. They have been doing that for decades. 

We do not learn. We think somehow, if you trade more, they will 

matriculate from dictatorship to a democracy. Not going to happen 

under Xi Jinping and the CCP. 

Outbound investment is a very, very good concept that needs to 

be further backed up through law, and I would also add outbound 

enabling. You know, I got a bill passed almost a year ago, and it 

was totally bipartisan, two votes against it on the floor of the 

House, to try to end, certainly expose and end the egregious practice of forced organ harvesting. Tens of thousands of young people, 

average age 28, are killed to get two or three of their organs each 

and every year. The problem is not only a gross human rights 

abuse, but it is absolutely being enabled by the PLA. And there is 

even a hospital, a 301 military hospital in Beijing where, you know, 

if Xi Jinping wants a new liver, he will probably get it from a 

Falun Gong practitioner who is 28 years old. I mean, how perverse 

is that? 

So I would like, you know, from our panel, and I thank you both 

for your expertise, are you aware of the PLA’s role in this terrible 

practice? And, again, what are they doing is, they do it with all 

kinds of pharmaceuticals, they try to get a monopoly on just about 
24 

everything. But in this case, it is a huge moneymaker for the PLA. 

It is also a way of regenerative medicine for their elite and for their 

military. Your thoughts. 

Mr. POTTINGER. Congressman, thanks for your leadership over 

the years on China human rights. I wish we had all listened when 

you had the foresight 30 years ago on most favored nation status. 

That really was, you know, the snowball that led to an avalanche. 

China’s human rights abuses are so grotesque and the scope is 

so big now with what is happening in the northwest of the country, 

in Xinjiang, whole ethnic groups which are being—well, in the 

words of both then Secretary of State Pompeo and current Secretary of State Tony Blinken, it is a genocide. I have heard over 

the years about and partly thanks to what you have uncovered 

with witnesses that you have spoken to over the years, the forced 

organ transplant business, I would not be shocked to learn the full 

scale of that industry, but I do not have particular insight right 

now into the scale of it. 

Mr. HARRELL. Yes, I just want to echo Matt in thanking you, 

Congressman, for your leadership on the human rights issue over 

many, many years, a really important set of issues with respect to 

China. Unfortunately, like Matt, I do not have specific insight into 

what the PLA is doing on organ harvesting. 

Mr. SMITH. I appreciate that. Well, our bill, it has been languishing in the Senate for months, would, in addition to sanctioning those who are, with knowledge, procuring these organs, it 

would do a serious work within the U.S. Department of State to investigate and to expose. That is the beginning of trying to bring an 

end to this horrible abuse. But, again, the PLA is benefiting usually from it. I yield back. 

Chairman MCCAUL. The gentleman yields. The chair recognizes 

Mr. Sherman. 

Mr. SHERMAN. Mr. Chairman, thank you for holding these hearings. I would like to put in the record a list of nine hearings of the 

Financial Services Committee that are relevant to this hearing. 

Chairman MCCAUL. Without objection, so ordered. 

Mr. SHERMAN. And, in particular, we have dealt in the Financial 

Services Committee on making sure that American investors do not 

get phony financial statements and that Chinese companies are not 

able to raise money from American investors with phony financial 

statements, and Senator Kennedy and I have passed the Holding 

Foreign Companies Accountable Act and the Accelerating Holding 

Foreign Companies Accountable Act to at least deal with that 

issue. We also had a hearing earlier last year on combating the economic threat from China. 

There are two aspects to this. There is the macroeconomics: does 

China have enough capital to build its economy; and the micro: can 

a particular company get its hands on an idea, a technology, an introduction? What is not polite to mention is the enormous trade 

deficit. We are running a trade deficit of a third of a trillion dollars 

with China, so every 10 years they have $3 trillion of capital decade after decade that they can deploy where pretty much wherever 

they want. Why this trade deficit? Well, both our countries are 

mercantilist to some degree. We want to export more, import less, 

we want more investment in the United States, less investment 
25 

elsewhere. But China has two ways to achieve this. First, they 

could have tariffs. Second, they can orally tell their companies just 

do not buy the American stuff. I cannot imagine a Member of Congress calling a company in our district and telling them do not buy 

the Chinese stuff, do not buy the German cars. 

But China has higher tariffs on our goods than we have on 

theirs. So we have only one device and, even as to that device, they 

are using it better. We, therefore, have a situation where China 

has $1.2 trillion of our bonds. We need that capital because we 

have to finance our trade deficit. Now that as to debt equity. As 

to stocks and other equity investments, the flows are roughly 

equal. 

Now, one of our witnesses mentioned that venture capital situa- tion. A company needs $20 million. I do not think we are going to 

be able to stop that because, if it is a good investment, the Chinese 

have $20 million. They have, as I say, a third of a trillion every 

year just from their trade surplus. 

But we can deal with the technology. We saw an example a decade and a half ago where American satellites were being put into 

space on Chinese rockets. What happened? Our satellite companies 

and their insurers found it in their interests to make sure the rockets did not blow up. So they provided good technical advice to 

China, and now China has better rockets. 

When we have a situation where Americans have it in their interest to transfer technology to China, it will be transferred. And 

it may not be a patent; we can outlaw that. But unless we outlaw 

the kind of investment where you have a controlling interest, when 

you are a consulting company, when you are a venture capitalist, 

and prevent the flow of technology there, we will continue to provide advice and contacts and know-how to Chinese companies. 

I commend the chairman and the ranking member for their bill. 

There is more to be done. I am working on legislation to make sure 

that we do not see—that every American company disclose to its 

shareholders its China risk and what it is doing to prevent its 

China risk for two reasons. First, so that the investors will know. 

Second, so the company will start working, as they have not sufficiently, on derisking themselves from China. Second, we have got 

to prevent index funds from investing in China because this is not 

paint by the numbers. It is too complex to figure out how and 

which companies in China to invest in. Third, on the human rights 

side, we have to prohibit American investment in sanctioned companies, particularly those sanctioned for the activities that Chris 

Smith recounted for us. It may not deprive those companies of capital, but it will at least prevent us from being involved. And fourth 

and most importantly, we need to prevent a capital gains allowance 

for investing in Chinese companies. This costs our Treasury many 

tens of billions of dollars. And I will ask our witnesses: does it 

make any sense for us to be providing an investor with a low tax 

rate on profits they make by investing in Chinese companies? Do 

either of you think that is a good idea? 

Mr. POTTINGER. I do not like that idea. That is to say that we 

are giving tax incentives to invest in our chief adversary. 

Mr. SHERMAN. And I will point out China has incentives for investment that are only applied to investing in China. So it is both 
26 

unfair and stupid for us to be providing a capital gains allowance, 

and I look forward to working with members on this committee to 

make sure that the capital gains allowance, which is designed to 

get people to invest in building an economy, is not an incentive to 

build a Chinese economy. And I yield back. 

Chairman MCCAUL. Excellent point. The chair recognizes Mr. 

Wilson. 

Mr. WILSON. Thank you, Chairman Mike McCaul, and I also 

want to thank Ranking Member Greg Meeks for the bipartisan 

dedication to exposing the single-party dictatorship of the Chinese 

Communist Party. And it is also very revealing that, amazingly 

enough, I agree with everything that Congressman Brad Sherman 

just said. And I do not want to ruin his reputation back home, but, 

hey, I even agreed frequently with Kathy Manning, too. So I am 

going to, I will brand several of you. Hey, we are working together 

in a bipartisan manner on this. 

It is sad to me that the people of China are impressed by the 

Chinese Communist Party. I appreciate firsthand the people of 

China. My father, First Lieutenant Hugh Wilson, served in the Flying Tigers, the 14th Air Force, in Kunming, Shantou, and Xinjiang. 

Our family has great affection for the people of China. We are inspired by the people of Taiwan in this week’s elections. Courageously, the Taiwanese have voted for democracy and freedom. Taiwan is a beacon of success for a free market democracy. 

With that in mind, Mr. Pottinger, since the murderous October 

7th terrorist attacks by Iran puppets of Hamas into Israel, the Chinese Communist Party has stepped up their outreach to the gulf 

allies of America and partners, hoping to capitalize on destabilization caused by the Iranian regime’s terrorist networks and is working together with war criminal Putin to gain a foothold in the region. There is a significant increase in media by the Chinese Communist Party and by war criminal Putin across the region in Arabic. 

The question: how do you see the CCP working to increase its influence interview he Middle East and what can be done to counter 

the increased role in the region and how is the threat to U.S. interests, as we, sadly, are in a conflict we did not choose, of dictators 

with rule of gun invading democracies with rule of law? 

Mr. POTTINGER. Congressman, thank you for those comments. 

And I would love to see photos of your father in Kunming with the 

P–40 Flying Tiger. Fantastic legacy. Brilliant. 

Look, I think you are exactly right that these conflicts that are 

beginning to spread us thin are, in fact, related. I believe the incoming Chinese foreign minister was here recently and made a remark to a U.S. audience when he was in the U.S. specifically that 

they are not related. Of course he would say that. They are very 

much related. China is the number-one backer economically for 

Russia, certainly diplomatically for Russia. According to a State 

Department report that came out last year from the Global Engagement Center, China is spending more money on pro-Russian 

propaganda worldwide than Russia is spending on pro-Russian 

propaganda worldwide. 

China is a key backer for Iran. It is no coincidence, I liked the 

way that you put it, that they are trying to capitalize on this situa-
27 

tion. I have noticed that Chinese shipping is not affected in the Red 

Sea the same way that everyone else’s shipping is. That is not by 

accident. That is being engineered by virtue of the fact that China 

is one of the main buyers of Iranian oil. These things are related. 

And I will paraphrase Xi Jinping, who has said something frequently, going back at least to 2021. He has given internal speeches where he has said the lead word to describe the global situation 

today is chaos. Chaos. And he has gone on in those speeches to 

make clear that he views that as a favorable condition for China 

achieving its ambitions worldwide. 

So here we are. Chaos is something that is part of the design of 

China’s global ambitions and of its foreign policy, and we, at our 

peril, fail to connect those dots. Those dots are very much connected, sir. 

Mr. WILSON. Indeed they are. And I really appreciate, one of the 

great achievements of President Donald Trump were the Abraham 

Accords to provide stability and success for our Middle Eastern allies. And then, sadly, I really believe one of the reasons that Iran, 

through their puppets of Hamas, attacked murderously and conducted the mass murder in Israel was to disrupt the ability of 

Saudi Arabia to join in, which would have been so beneficial to 

Saudi Arabia and to the Middle East region. 

And so with that, I thank both of you for being here, but I really 

want to thank again the chairman and ranking member. All of this 

needs to be exposed. I yield back. 

Chairman MCCAUL. The gentleman yields, and I appreciate the, 

you know, you mention Abraham Accords. The security agreement 

with the Saudis, it is going to be so important between Israel and 

the United States and Saudi Arabia. It could truly bring peace to 

that region. So thanks for bringing that up. 

The chair recognizes Mr. Bera. 

Mr. BERA. Thank you, Mr. Chairman. And for the millions of 

viewers on C-SPAN that are watching this, the media does not 

cover the bipartisan nature of how Democrats and Republicans 

work on policy. I commend the chairman and the ranking member 

and the members of this committee to work on a challenge that addresses our vulnerabilities as a nation but also strengthens America’s security. 

If we were to go back a decade, two decades, three decades ago, 

you know, there was a hope that, you know, as China built a middle class, an entrepreneurial class, that they would become responsible partners in a global economy. Obviously, that isn’t where we 

are today. We clearly understand what Xi Jinping’s policy objectives are, what Beijing’s policy objectives are, and we have to address the reality that we face today. 

I think, Mr. Pottinger, I would use the term the panda has left 

the zoo. The panda has left the zoo, so I think we have got to address that. 

Mr. Harrell, you used a statement, I think, is important for us 

to understand. I think the term you used was a civil-military fusion 

doctrine. And if you could just take a minute to expand on that doctrine. 

Mr. HARRELL. Absolutely. So this has been one of the defining societal doctrines in China, particularly under Xi Jinping, where, 
28 

under Xi Jinping thought, if you will, and, certainly, he calls it Xi 

Jinping thought, there is an idea of mobilizing all of China’s society 

behind China’s ultimately military aims. And so what we have seen 

over the last, well, going back many years but particularly over the 

last decade is increased efforts, not only through sort of official 

spending and subsidies but through a variety of regulatory mechanisms, as well as informal mechanisms, to galvanize China’s technology sector, universities, major SOEs behind building China’s 

military might, such that, sort of to come back to today’s hearing, 

I think really only a sectoral approach that says we are going to 

limit investment in these key sectors is going to work to prevent 

Americans from supporting the development of those key technologies in China because, if you just go after one or two firms, 

China’s response is we’re just galvanizing all the other firms in this 

sector to do what that firm can no longer do. 

Mr. BERA. So super important for American and Western industry and investors to really understand the root of that doctrine and 

the foundation. These may be patriotic companies that are profitdriven, that are just looking for good investment opportunities; but 

if they do not truly have an understanding of how those investments potentially could be used to undermine our own national security. 

Mr. Pottinger, let me ask you a question that touches on that. 

International coalitions are going to be important. And, again, I 

commend the chairman for his work on the CHIPS Act, an incredibly important piece of legislation. You know, Micron has a presence in my community, and we saw some economic retaliation from 

China on Micron. I do think we were successful in keeping, you 

know, international companies from seeing a market opportunity 

and saying, OK, well, we will go and undermine that. But I think 

it will be really important for us to have these international Western coalitions of like-valued countries that understand this. It won’t 

be easy, but I think it is important. 

Mr. POTTINGER. Congressman, I agree with you. And I found 

that, over the years, when the U.S. leads, our allies tend to eventually follow, sometimes very quickly. In the case of sanctions on 

Russia, I mean, it would have been even better if we had credibly 

threatened them in advance of an invasion by Putin, war criminal 

Putin, as Congressman Wilson, put it, which is a great title for 

Vladimir Putin. It would have been better to have had that advance, but, once that invasion began, the G7 and other allies began 

to coalesce very quickly. So I think it is incumbent upon the United 

States to lead and others will follow. 

You made a comment a moment ago just about how private equity firms and others, you know, often need to be told or, actually, 

in some cases, want to be given those guardrails. I have had conversations with investment funds that have said, look, we have a 

compliance shop. If Congress will tell us where those guardrails 

are, we will abide. And in some cases, they want those guardrails 

to come in more tightly because that means that they are not missing out on opportunities that, you know, less scrupulous competitors could take advantage of. And then, over time, it is not just 

American competitors but others in Europe and Japan and elsewhere that will follow with similar types of rules and regulations. 
29 

Mr. BERA. Great. Again, I commend the chairman and the ranking member for their work and leadership on this topic. 

Chairman MCCAUL. Thank you, Mr. Bera. The chair recognizes 

Mr. Mast. 

Mr. MAST. Thank you, Mr. Chairman. I appreciate the expertise 

you both bring today, the work that you all have done. I am over 

here, Mr. Pottinger. I know you were looking for where we are at. 

I have read work from both of you over the years. I want to start 

with you, Mr. Pottinger. How many times can you recall in speeches Xi Jinping talking about preparing for war? 

Mr. POTTINGER. Well, Congressman, last March, so less than a 

year ago, China held its annual two meetings, what they call the 

lianghui, two meetings. It means the National People’s Congress 

and another gathering called the Chinese People’s Political Consultative Conference. 

Mr. MAST. Simultaneously. 

Mr. POTTINGER. Simultaneously. Xi Jinping gave four addresses 

to delegates to those two meetings. All four of them had the common theme of the need for China to prepare for war. And in the 

lead-up, there were changes that were being made to laws, for example, on making it easier to put the military in charge of Chinese 

society in the event of war; new rules to retain reserve military 

personnel for longer periods of time, particularly if they have key 

skills; new mobilization, military mobilization offices that have 

popped up in most of the provinces around China; building air raid 

shelters right across from Taiwan, as well as starting to create authorities for building military hospitals that can do combat care. I 

do not take comfort in any of those signals, any one of them, much 

less the constellation that is painted by all of them combined. 

So I think that war is on Xi Jinping’s mind. He has told us as 

much. 

Mr. MAST. Anybody preparing for war, obviously they are looking 

at a number of different facets of where they could weaken their 

enemy. And whether that is through their military might, whether 

that is economically, whether that is in any place domestically, 

there could be a host of places that they try. What worries you 

most out of any of those areas that you see them working to weaken the United States of America as they prepare for war? 

Mr. POTTINGER. Well, I think that all of the things that add up 

to deterrence are built on one factor in particular, and that is hard 

military might, the credible availability of decisive military force. 

I worry that if we do not keep pace with the crises that Beijing, 

in some cases, is adding fuel to, we will not have sufficient capacity, munitions, whether it is torpedoes or anti-ship missiles or the 

ability to build more of those things relatively quickly. It is not like 

the days of World War II with Rosie the Riveter where you can 

build bombs on what the day before was an auto factory quickly. 

These are very sophisticated munitions that take sometimes years 

for those supply chains to add up. 

So my biggest concern is we do not meet this moment that Xi 

Jinping is talking about as a moment where he can take advantage 

of what he calls an opportunity of a hundred years. 

Mr. MAST. We quite often in this body talk about the Belt and 

Road Initiative and largely focus on these developing countries 
30 

where they can put a road in, extract something that they need for 

their supply chain. To that effect, I do not think we look enough 

internally about where does the U.S. investor, the U.S. investment 

into China, how is that making us subservient to that Belt and 

Road Initiative as Americans and where does that advance their 

preparation or where could it pull their preparation back were that 

U.S. investment to decrease? 

Mr. POTTINGER. Well, the Belt and Road Initiative is really a vehicle for corruption. It is a means to expand China’s influence 

around the world through co-opting elites and governing elites in 

foreign countries. There is a reason why most of the Belt and Road 

agreements that China signs with foreign governments are not 

available to the light of day. They are secret. Some of them have 

been leaked over the years, and they have these common patterns 

to them. They involve countries pledging sovereign assets, I mean, 

things that belong to the people of those countries, whether it is 

a port or it is telecommunications and rail infrastructure. And so 

China is weakening the ability really of those countries’ people to 

maintain something like a democratic—in some cases they are democracies and that democracy is at risk or they aspire to be democracies and are undermined by the enormous debt and corruption 

that these agreements saddle on them. So that hurts our interests. 

When corruption and co-optation of elites is the mode for advancing 

power in the world, that is terrible for our values and our influence. 

Mr. MAST. Thank you, Mr. Chairman. 

Chairman MCCAUL. The chair recognizes Ms. Manning. 

Ms. MANNING. Thank you, Chairman McCaul and Ranking Member Meeks, for holding this hearing. And I do appreciate the bipartisan nature of the hearing on this critically important issue. And 

thank you to our witnesses for being here today. 

I want to get into some of the details that are involved in this 

issue. So, Mr. Harrell, in your view, which Chinese State activities 

or industrial policies, including the forced or coerced transfer of 

technology, IP theft, data localization, or others, which pose the 

greatest risks to our national security and how can greater scrutiny 

of our outbound investments help combat these practices? 

Mr. HARRELL. I think there are many things, obviously, the Chinese do that pose a threat to U.S. national security, but I want to 

focus on two in response to your question. I think, fundamentally, 

we need to keep an edge in a number of critical high-technology 

areas that are going to be hugely important to both military and 

economic and societal goals over the next decade. And here I am 

thinking semiconductors, AI, quantum, certain parts of the green 

technology revolution, that are coming where we need to both be 

innovating more here at home and then we need to make sure that 

our technology and our expertise is not helping them catch up and 

indeed overcome. And that is why I really think that on those kind 

of key technologies, making sure we have both an export control regime so we do not give those technologies, semiconductors, green 

technologies, AI, a couple of other sort of high-end military dualuse technologies, both we are not giving them the technologies and 

also our capital and kind of business know-how expertises and 

helping them catch up and ultimately overcoming us. 
31 

Separately a little bit from the focus of today’s hearing but I do 

think is important is making sure we are not dependent on China 

for key supply chain inputs, things like critical minerals, things 

where, if we got to that situation where there is a conflict, they 

would have leverage over us. A little separate from today’s hearing, 

but I know the committee has done important work on those supply chain vulnerabilities and would urge the committee to continue 

that work, as well as the focus on technology and investment we 

are talking about today. 

Ms. MANNING. Great. Thank you. And I want to focus in a little 

bit on the AI issue. While the Biden executive order on outbound 

investment pertains to AI, not all applications and investments in 

AI technology are equally risky to our national security. You mentioned in your testimony the need for greater scrutiny into highlevel AI research lab owned and run by a U.S. company in China. 

How should our outbound investment regime treat different types 

of research or applications within a sector like AI? 

Mr. HARRELL. So when I was in the Administration working on 

the Biden Administration’s executive order, which came out after 

I left, this definitional issue was one of the most complicated ones 

because the goal, at least from the Administration’s perspective, is 

not to sort of prevent a Chinese hotel from having a chatbot, you 

know, for basic customer service. I think what we have seen is a 

need to focus on a couple of different types of AI. One is obvious, 

which is specific applications of AI that have clear military or other 

harmful impacts, like facial recognition and other kinds of AI-enabled surveillance technologies. We clearly need to focus on that. 

I also think we need to focus on the underlying development of 

advanced high-end models like we have seen here in the U.S. with 

ChatGPT–3, ChatGPT–4, because the reality is, if China develops 

those models, they can then develop the applications of them. So 

I focus on both a set of applications and then also higher-end largelanguage models and other large-application models generally. 

Ms. MANNING. So one of the areas that I focus on where I think 

we continue to miss the boat in this country is the need to reform 

and update our immigration laws. They have not kept up with the 

economic needs of our country. So I think, in your testimony, you 

welcome State Department and DHS efforts to expand visas for top 

AI and other technical scientists and researchers to come to the 

U.S. to help us innovate here. Can you talk about how we can leverage visa and immigration policies in ways that best serve our 

interests? 

Mr. HARRELL. I very much appreciate that question and your 

focus and leadership on this issue. As part of the Biden Administration’s AI executive order a couple of months ago, a little-noticed 

provision in there directed the State Department, DHS, to set up 

a program to speed visas for top AI researchers, including in 

China, so that we can actually get them to come here and innovate 

and help do research here. Now, of course, there are security risks. 

You need to think through, you know, the vetting process. But, ultimately, I think we want to have a country where we continue to 

bring the best AI talent from around the world and have them 

come here and develop those innovations here. The Administration 

is doing what it can under existing authorities, but, obviously, im-
32 

migration requires statutory change, including in this area. And so 

I do urge the committee to look at that important issue. 

Ms. MANNING. Amen I meant to say. My time is expired. Mr. 

Pottinger, I have some questions for you that I will submit in writing, but thank you and I yield back. 

Chairman MCCAUL. The gentlelady yields. The chair recognizes 

Mr. Barr. 

Mr. BARR. Well, let me first thank and commend Chairman 

McCaul and Ranking Member Meeks for their work and certainly 

very well intended to protect our national security by restricting 

U.S. investors for unwittingly financing certain sectors in China 

that threaten our national security, and I share their goal. But I 

do want to unpack this discussion about an entity-based approach 

versus a sector-based approach, and, first of all, the chairman and 

I have had many discussions on this in working through this with 

other colleagues on both this committee and the Financial Services 

Committee. I do not think the two are necessarily incompatible, 

and we are working on potentially marrying both approaches. But 

I also would disagree with the suggestion, respectfully, that a sector-based approach is, quote, stronger than an entity-based sanctions approach when, in some cases, in some cases, the exact opposite is true. 

So let’s unpack that for a minute here, Mr. Pottinger. Does a sector-based outbound investment restriction block Beijing-directed 

subsidies at a state-owned enterprise? 

Mr. POTTINGER. Not necessarily. Right? If these are Chinese-invested companies—— 

Mr. BARR. Right. So if we are restricting Americans from investing in a Chinese military company but it is subsidized by Beijing, 

that regime does not affect the funding of that entity. 

Mr. POTTINGER. Right. 

Mr. BARR. And then revenue generated by the sales of goods and 

services, if the Chinese military or surveillance or technology company is selling goods and services globally, restricting U.S. investment does not impact that, correct? 

Mr. POTTINGER. That is true. 

Mr. BARR. Also, investment from non-U.S. investors, does a restriction on U.S. investment, outbound investment, does that impede investment from non-U.S. investors into that Chinese entity? 

Mr. POTTINGER. No, not unless we build a coalition to support 

that goal. 

Mr. BARR. And, Mr. Harrell, would the Biden executive order, 

does that, in any way, that is the CMIC companies, the Chinese 

military industrial complex companies, are investors in other countries in any way affected by that executive order? 

Mr. HARRELL. They are not directly affected by it, though they 

cannot use a U.S. bank to facilitate that investment. So it probably 

makes it a little harder for—— 

Mr. BARR. So here is the point I am trying to make: would fullblocking SDN sanctions, if Treasury actually did it, would fullblocking SDN sanctions have a multilateral extraterritorial effect 

that these restrictions that only apply to U.S. investors have? 

Would a full-blocking SDN sanction have a multilateral 

extrajurisdictional effect? 
33 

Mr. POTTINGER. Yes. 

Mr. BARR. So this is why I think we ought to not just dismiss 

this entity-based approach. And, certainly, the chairman is right 

and you all are right that China changes names and whatnot, but 

OFAC is particularly equipped in conjunction with the intelligence 

community to continue to adjust those sanctions. 

I want to also mention the fact that the Financial Services Committee bill that we have marked up, the Chinese Military Surveillance Companies Sanctions Act, would require Treasury. And I 

think this letter that Treasury sent back to the chairman and 

ranking member on Hikvision is troubling, but that is exactly why 

the Financial Services Committee bill would require Treasury to 

not just send a perfunctory letter back to the chairman but require 

Treasury to do much more than that and inform the chairman of 

this committee, the Financial Services Committee, the Senate counterparts, on an annual basis why the Treasury Department is not 

imposing full-blocking sanctions on Hikvision and continually update the sanctions list, the Entity List at Commerce, the CMIC list, 

the DoD military list on an annual basis to keep up with the 

changes with China. 

Last point and it is a question about the bill before us today. 

What I am worried about, and it is a good bill, but on page 20 and 

21, it specifically talks about exceptions, covered activity. Covered 

activity does not include an investment in publicly traded security 

or an index fund or a mutual fund or a venture capital fund. In 

other words, we might be restricting the funding, U.S. funding, but 

Americans, under this bill, because there is not full SDN-blocking 

sanctions, would still be able to trade in those securities, whereas 

if we sanctioned, full-blocking sanctions, on these entities, there 

could be no trading of these securities at all. There could be no contracts, and it would not just apply to U.S. but also non-U.S. citizens. 

My time is expired, but if you could comment on the strength of 

sanctions versus a non-sanctions approach. 

Mr. POTTINGER. Congressman, I agree that sanctions, when applied, really come at a company from more angles than just an export control or even just an investment restriction for sure. I think 

the challenge are ones that we have talked about, simply how do 

you incentivize the Department of Treasury to really apply those? 

You mentioned just a moment ago, I think, the idea of an annual 

requirement and so forth. I mean, I think that would be welcome. 

Mr. BARR. Thank you. I yield. 

Chairman MCCAUL. The gentleman yields, and we will have further discussion. I know we are meeting with the majority leader. 

It seems to me you could take the provisions of this bill—I am not 

opposed to sanctions. It is just that we have to have a compromise, 

and I think that is the bottom line. 

So the chair now recognizes Ms. Dean. 

Ms. DEAN. Thank you, Mr. Chairman. I thank you and Ranking 

Member Meeks for this legislation, for working together so well 

and guiding this committee in a bipartisan way. I want to go back 

to something that Mr. Bera was talking about, and I wanted to ask 

you, Mr. Pottinger, you, too, spoke of and wrote in your testimony 

about the military-civil fusion. For those who are in far into that, 
34 

you know, in a democratic society we do not fully appreciate that 

strategy, the depth and breadth of it, would you want to add anything to what Mr. Harrell spoke of also? 

Mr. POTTINGER. Congresswoman, thank you. I think that, under 

Xi Jinping in particular, he has really reoriented the State around 

his personal goals, which have now become the goals of ruling 

party that he leads. And those tools are sometimes laid out explicitly, for example in things like this military-civil fusion strategy 

and some of the laws. One that I mentioned was this national intelligence law that mandates that anybody must serve the Chinese intelligence apparatus and do so in secret when asked. 

There are also a lot of intangible ways that the party forces business, irrespective of whether it is nominally private or State owned, 

to align itself with the interests of the party. And one of the ways 

that Xi Jinping has done that has been to establish committees, 

Communist Party committees and cells at multiple levels within 

existing companies. So a very good example would be if you look 

at something like Alibaba where Jack Ma, who, by the way, is a 

party member according to Chinese public accounts, but was really 

an entrepreneur at heart who founded this incredible company, and 

it was an incredible success within China and beyond. He was 

eased out of, you know, away from the steering wheel of that company shortly after he made remarks criticizing China’s regulatory 

environment under Xi Jinping. That was back in 2020. 

And so there is a Communist Party secretary of ByteDance, 

which is the controlling shareholder of TikTok. He also, the Communist Party secretary of ByteDance is also the editor-in-chief of 

all the applications under ByteDance, presumably including 

TikTok. So those are a couple of examples of things that are hard 

to see but are going on. 

Ms. DEAN. Thank you for those explanations. Mr. Harrell, I was 

thinking you are both coming from such important background in 

two Administrations on this issue. Can you speak to this bill and 

in what important ways does H.R. 6349 go farther than the executive order issued by the president in August either by sector or by 

investor? 

Mr. HARRELL. Thank you very much for the question, Congresswoman. And as I said in my opening remarks, I do think it is very 

important for Congress to act here. I think what the Administration has done, while an important start, is not sufficient to meet 

the challenge. 

And I think the bill does a couple of important things. First, it 

does expand the technology, the covered technology sectors to focus 

on some high-performance hypersonics in a couple of areas that are 

important to China’s defense industrial base that I think are valuable additions. It also adds a permanent statutory footing to the 

Biden Administration approach, which I think is important both for 

signaling purposes, that there is bipartisan support on this issue. 

We, as a country, are united on this. I also just think, over time, 

you know, Administrations come and go. And I think having a permanent feature in American law, just as we do under CFIUS, 

which also got started in the 1980’s by executive branch action but 

which Congress later came in and codified and expanded on, really 

important to have that statutory basis here. 
35 

Ms. DEAN. And we, as Members of Congress, agree with you on 

that. It is better to have a statutory basis in something that is 

quite clear. Mr. Harrell, do we have any calculation, does anybody 

have any calculation of outbound investments that have really ultimately done harm either to our national security or global security? 

Mr. HARRELL. So I am not aware of public sort of top-line figures 

of here are the investments that have caused national security 

harm. When I was in the Administration and, obviously, I am still 

under confidentiality provisions, the Administration did do a very 

lengthy detailed analysis cataloging many different investments 

that we determined the Administration did think later caused 

harm, one of which I talked about in my opening statement on 

SenseTime. That is one that is now public and sort of easy to talk 

about. But I think what we have seen is a wide range of investments over many years have later caused harm, but I am not 

aware of any public kind of top-line number of the dollar value of 

those. 

Ms. DEAN. Again, I thank you both, and I thank the chairman. 

I yield back. 

Chairman MCCAUL. The gentlelady yields. The chair recognizes 

Ms. Kim. 

Mrs. KIM OF CALIFORNIA. Thank you, Chairman McCaul and 

Ranking Member Meeks for holding today’s hearing on outbound 

investment regulations. So I am hearing that there are generally 

two approaches to addressing outbound investment concerns. One 

is, you know, the broad investment restriction in technology sectors 

where there are national security concerns; and the second one is 

the Entity List-based sanctions approach focused on specific foreign 

companies that are linked to CCP military or intelligence agencies. 

As you know, this is a debate we are having right now and trying 

to decide which of these approaches is best. 

So in your view, is there a way to reconcile these two different 

policy approaches; and, if so, can you describe how Congress can 

go about doing that? 

Mr. HARRELL. Maybe if I could just offer a minute of remarks 

and then see if Matt has anything to add. I do think a sanctions 

approach with respect to China has value. 

Clearly where there are Chinese companies that are engaged in 

human rights abuses, in truly nefarious kinds of activities, we 

should sanction them. I also think the Biden Administration should 

be more aggressive, as Matt said in his opening remarks, on using 

the existing executive order first signed under President Trump 

that limits U.S. investment in the publicly traded securities of big 

Chinese companies that are linked to the Chinese military. I think 

the Administration should be more aggressive in prohibiting American investment in these publicly traded securities. 

I think there are a couple of notes of caution on SDN sanctions 

though when it comes to big Chinese companies. 

And, again, I think there are times when it is appropriate. 

But if I look at, for example, the Defense Department list of Chinese companies linked to the Chinese military, all of China’s major 

mobile telecommunications providers are on that list, understandably. They are all, I am sure, providing telecommunications to the 

Chinese military. 
36 

On the other hand if we sanctioned all of China’s mobile telecommunications providers, you would effectively prohibit all American companies from doing business in China because none of their 

employees in China could use the telephone. 

So I do think there is a place for SDN sanctions, but I think we 

also have to be careful in our application to not, you know, kind 

of inadvertently do something like preventing American companies 

in China from using the telephone. 

Mrs. KIM OF CALIFORNIA. Sure. Mr. Pottinger, do you want to 

add to that and hopefully quickly? 

Mr. POTTINGER. Sure, Congresswoman. I agree with what Peter 

just laid out. SDN, to Congressman Barr’s point, is a more powerful tool. But sometimes it can be overkill or inappropriate if it is 

applied in ways that the example that Peter just laid out sort of 

illustrated. 

This sector approach, I think the importance of that is the simplicity. It is less resource intensive for the Treasury Department. 

It is easier for companies to understand what is off limits and not 

to cross those barriers. 

So I wouldn’t know how to describe the way to meld those together. But it would have to have enough flexibility built in so that 

it did not mandate, for example, that you would have to use both 

simultaneously necessarily. 

Mrs. KIM OF CALIFORNIA. I appreciate both of your perspectives 

on that. Hopefully, we can come together and hopefully reconcile 

but find a way that we can really make this work because both options do present its pros and some concerns as well. 

But resourcing will be important as Congress moves to establish 

an outbound investment regime. But I am interested in hearing 

from you about where these new resources would be best suited. 

Yes. 

Mr. HARRELL. I do think to manage effectively an outbound investment regime, it is important for the executive branch to have 

adequate resourcing. These are complicated issues. 

I think fundamentally probably in three places you need resources. One is at the Treasury Department, just it manages investment. It needs some resources. 

One is probably in the Commerce Department where they need 

some additional technical expertise, which they are already staffing 

up because of export controls, but they need that there. 

The third, of course, is in the intelligence community to kind of 

better understand what’s going on within China and the dynamics 

there. 

Mrs. KIM OF CALIFORNIA. Do you think that establishing an outbound investment regime requires the creation of a new office, or 

agency for that matter? 

Mr. POTTINGER. I think that—I have asked myself that at times 

when I was in office and thought it might be easier if it was put 

into some other entity. But I think it really ultimately boils down 

to leadership, that Congress has the ability to hold accountable 

leaders of the departments and agencies that currently have those 

authorities. 

I think that is the fastest way to exert the authorities and intention that you were legislating. 
37 

Mrs. KIM OF CALIFORNIA. OK. I think my time is up. Thank you. 

I yield back. 

Chairman MCCAUL. The gentlelady yields. I just want to make 

a point that the two witnesses have made. You know, the executive 

order just applies to China. This bill, it’s not only China, but it’s 

Iran, Russia, and North Korea as well as China. 

As we see the current unholy alliance forming between these four 

countries against the West, the United States, our interest, and our 

NATO allies, I think that’s a very important point. 

The Chair recognizes Mr. Schneider. 

Mr. SCHNEIDER. Thank you, Mr. Chairman. And I want to associate myself with your remarks. As you said, it is more than just 

China. And it is immediate, mid-term and long-term. And that is 

one of the things I want to touch on. 

I also would like to associate myself with the comments earlier 

of my colleague, Mrs. Manning, on immigration. But in particular, 

as everyone has said, thank the witnesses here today but also the 

chair and the ranking member for bringing this legislation forward. 

I join with colleagues on both sides in commending the Biden Administration executive order on outbound investment, and I want 

to thank the committee for having this hearing today on this legislation. I am proud to join in co-sponsoring it. 

A thoughtful outbound investment regime is necessary to building on the work of CFIUS and making sure that U.S. investment 

is used to uplift communities around the world rather than 

strengthening our strategic adversaries and empowering totalitarians. 

We have already had an impressive conversation about the technical aspects of this legislation and specific concerns regarding the 

People’s Republic of China semiconductors, microelectronics, quantum information technologies, artificial intelligence, and other technologies of the future. And it is our job here in Congress to make 

sure that we keep the United States, U.S. interests, U.S. population, U.S. citizens safe and prosperous. 

I want to start, and I will go back to something we were talking 

about earlier with Mr. Barr, the idea of sector versus company specific. 

The sanctions approach led by Treasury, Mr. Pottinger, I will ask 

you, would it catch a startup, for example, AI company, that is in 

its earlier stages just beginning to develop its technology may not 

even be on the radar other than with venture capital, would it 

catch and prevent them from developing civilian military technology? 

Mr. POTTINGER. Congressman, it could easily miss that. It is very 

difficult to map China’s AI ecosystem. Oftentimes, it takes sometimes years before the importance of a particular entity really 

makes itself apparent. 

Mr. SCHNEIDER. Mr. Harrell? 

Mr. HARRELL. I completely agree with what Matt said. Now it 

very likely would not capture that simply because Treasury does 

not know all of the millions of companies in China that are out 

there. 

Mr. SCHNEIDER. Conversely would the sectoral approach likely 

catch such a startup? 
38 

Mr. HARRELL. Not only would it likely catch such a startup, but 

it might actually require the investor, if the investment wasn’t prohibited, if it was sort of outside of prohibited, to come in and tell 

the U.S. Government about that that startup so the U.S. Government could begin better understanding it. 

Mr. SCHNEIDER. Mr. Pottinger, do you agree? 

Mr. POTTINGER. I agree with Peter’s remark. 

Mr. SCHNEIDER. Thank you. Let me shift gears. H.R. 6349 adds 

hypersonic technology to the list of covered technologies. We have 

seen hypersonic missiles as a priority for Tehran, Moscow, 

Pyongyang. In fact in the Ukraine War, in Putin’s War against 

Ukraine, we have seen for the first time the Kh–47M2 Kinzhal or 

Dagger in action. 

My question for whichever one of you wants to answer this, now 

looking at the immediate term where they are currently being used 

but long-term threat to the United States, how will this prospective 

outbound investment regime affect the short-term application of 

hypersonic technology like what Russia is using against Ukraine, 

Iran, or North Korea and what do you think the long-term impact 

would be? 

Mr. POTTINGER. Hypersonics is one of those that I think the 

United States was hemorrhaging our technology early on before 

there was a consensus like what we’ve heard in this room today 

about the nature of the threat that China poses to our interests. 

And I know stories of conferences that China held where American scientists showed up to talk about their latest findings with 

respect to hypersonics. And in some cases, China ended up putting 

that theory to practice before the United States did. 

If we had had outbound export controls earlier on that, that 

would have helped. Outbound investment restrictions might have 

helped with that as well. 

Mr. SCHNEIDER. Thank you. And just to wrap up, with my colleague, Mr. Wilson, he and I have been pushing to curb the export 

of high end machine tools, especially CNC machines, to Russia. 

Treasury did sanction 130 entities related to this effort, and we 

are grateful to see that. But with respect to China and this policy, 

can you talk about how it might affect machine tools, if at all? Either one? 

Mr. POTTINGER. I do not have a specific answer on that, but I 

will say I recently met someone after I had given a talk out in Arizona who told me about how much damage our transfer of our machine tooling capabilities, particularly to China, have been to some 

of the problems that we’re trying to solve for now, for example 

building up our own defensive capabilities, munitions, things that 

are wholly civilian, commercial capabilities as well. Machine tooling was really one of the things that allowed us to win World War 

II. 

Mr. SCHNEIDER. Thank you. And it is critically important today. 

And I know we will continue to focus on that in this committee. 

But again, I thank the chair and the ranking member for this legislation, and I yield back. 

Mr. SCHNEIDER. The gentleman yields. The chairman recognizes 

Mr. Davidson. 
39 

Mr. DAVIDSON. I thank the chairman for holding this hearing, 

and I thank the body for paying attention to an important issue. 

Back in 2018, we passed the bill called the Foreign Investment 

Risk Reduction Modernization Act. Part of the reason we are here 

today is presumably that bill is not adequately. Why not? 

Mr. HARRELL. Thank you very much, Congressman, for that 

question. I think that the steps that Congress took back in 2018 

with FIRRMA were really important in expanding the limits on 

Chinese investment in the U.S. There was a pattern that we were 

seeing at the time, Congress certainly saw at the time, where Chinese companies were investing in a whole range of technology—— 

Mr. DAVIDSON. Specific to outbound investment. I mean, we, of 

course, dealt with Chinese investment in CFIUS. But there is still 

the export control portion. 

And frankly, we had lots of companies that were concerned even 

as we had done the research and development tax credit. We have 

done things to incentivize investing and doing your research and 

development in America. But they were concerned that if I am 

going to do research and development in America, do I own the intellectual property or does America own it? 

And if at the end of the day, they cannot export the technology, 

they just simply invest elsewhere. So is that a flawed approach or 

is there some other thing that we are looking to capture here that 

isn’t captured by FIRRMA? 

Mr. HARRELL. Well, Congressman, I would just say that because 

FIRRMA to my knowledge is only for inbound investment into the 

United States, that this in some ways is almost a mirror image of 

FIRRMA. So it is trying to achieve some of the things that 

FIRRMA was trying to solve for but whereas FIRRMA is trying to 

prevent—— 

Mr. DAVIDSON. But we stopped too short on FIRRMA. We did not 

get an adequate way to address the outbound controls. Obviously, 

Mr. Barr and Mr. McCaul have different approaches. 

I will tell you as a private sector business guy, I go back to the 

days of conflict minerals. You know, so there was this idea, you 

know, that certain minerals in countries, primarily in Africa, that 

are involved in conflicts, we do not want those things to show up 

in American products. And so the solution was that you have every 

company that uses metal report on it. 

I had at the time a small business in Western Ohio, and I am 

signing off on a statement that the metal I am using contains no 

conflict minerals. Now that is essentially Mr. McCaul’s approach. 

You go all the way down to the small business level, and you hold 

every business in America accountable for something. 

Frankly they are, like, why am I signing this? I have no idea. I 

certainly do not have a way to trace all the origin of the tin that 

is in the steel here to where in Africa the tin was cut. Why do not 

you ask U.S. Steel on that? 

And frankly that is Mr. Barr’s approach. Mr. Barr’s approach 

says, let’s use OFAC. And, you know, we use OFAC just short of 

conflict, right? We go with a sanctions regime as a tool short of 

going to war. Is that a more serious toolkit than just regular laws 

that apply to small businesses? 
40 

Mr. HARRELL. Sir, I very much understand and sympathize with 

the challenges of supply chain sourcing that your business faced in 

Ohio. 

I guess I see things a little differently where you have an American company, whether it is a big company or whether it is a small 

company investing in China. Presumably that company knows that 

it is investing in China and is making a decision to invest and 

knows what sector in China it is investing in. 

So I think that if you are a company that wants to make a—an 

American who wants to make an investment in AI sector in China, 

you probably do know what you are doing and could make a decision on the sector about whether or not to invest there. 

Mr. DAVIDSON. I guess speaking of conflicts, maybe we could just 

go, like, who else do you guys represent? Do you represent big 

tech? You know, because it seems to me as a small business guy, 

just like we did this business, you know, beneficial ownership disclosure. 

Originally, every business in America was going to have to report 

all of this and essentially negotiated it down to where the smallest 

of the small businesses, businesses under 20, now have some reporting requirement because apparently that is how all the bad 

stuff happens, not the big companies. It couldn’t be those guys. 

So all the lobbying stopped because the small companies do not 

have enough lobbying power to do it. So either of you guys represent big tech companies? 

Mr. POTTINGER. I am a small business owner. I am not representing any company’s interest here today. I have no financial interest in the outcome of any of the bills that you are talking about. 

I am representing myself. I am representing the think tank that 

I work for as well, Foundation for Defense of Democracies, sir. 

Mr. DAVIDSON. All right. 

Mr. HARRELL. I just want to say the same. I am here representing myself. I have no financial interest in the outcome of this 

or in the sanctions approach. 

Mr. DAVIDSON. This is the challenge. The biggest of the big companies get lobbied and represented. And you pass this off, and Congress will hold up the shiny object and say we did something. It 

does not solve the problem. 

The sanctions regime works pretty well. I am highly biased. And 

frankly it is the committee of jurisdiction. I am on both. I think 

that’s the right way to solve the problem. And I yield back. 

Chairman MCCAUL. The gentleman yields. I just want to say 

first that the witnesses filled out a truth in testimony form regarding any motivation to impugn your character before this committee 

is not well served in my judgment. Perhaps for Mr. Davison, since 

he missed your testimony, Mr. Pottinger, why do not you describe 

the difference between a sector-based approach and an entity-based 

approach. 

Mr. POTTINGER. Congressman, if you are looking at an entitybased approach, that requires the U.S. Government, probably the 

Department of Treasury, to look at each specific company that it 

wants to prohibit Americans from investing in. 

So they actually have that authority from the executive orders 

that emerged from the late Trump Administration and the early 
41 

Biden Administration, but only 68 companies to my knowledge 

were ever actually designated for prohibition on U.S. investment 

into Chinese military-affiliated companies. 

So a sector approach, the idea is that you do not have a barn full 

of analysts, God bless them, over at Treasury. They are often having to divide different problem sets as well. 

I mean, I have been over there when I was in office. You know, 

if North Korea is testing a nuke or a missile, that team has to really shift to start targeting North Korean entities. And by the way, 

you know, Iran is creating problems. Russia has now launched the 

biggest war in Europe since World War II. That Treasury team is 

getting spread very, very thin. I know how hard they work. 

If you have a sectoral approach that just says, look, Americans, 

U.S. persons, are not allowed to invest in these particular sectors 

that are relevant to China’s military and surveillance state as well 

as Russia’s, North Korea’s, and Iran’s, it makes it simpler, and it 

is less resource intensive for the U.S. Government. 

Chairman MCCAUL. So it in fact provides more clarity to the private sector and businesses, correct? 

Mr. POTTINGER. I would argue it provides more clarity, yes. 

Chairman MCCAUL. And an entity can be changed overnight in 

China, correct? 

Mr. POTTINGER. Sure. 

Chairman MCCAUL. And so a sector-based approach would get 

around that? 

Mr. POTTINGER. One of the things I mentioned earlier is that 

China has systematically shut down the research enterprise in 

China so that it is harder for foreign companies to acquire realtime information about ownership structures, supply chain flows, 

and the like. Those companies are being systematically rolled up 

and dismantled or co-opted to serve and align themselves with the 

Chinese Communist parties. 

Mr. DAVIDSON. Will the gentleman yield for a question? 

Chairman MCCAUL. I am not finished yet. We attempted to sanction under Treasury, Hikvision, which is a State surveillance company on the Uyghur Muslims, and guess what the Treasury Department said? In a letter to me and the ranking member, it cannot be done. 

So I guess it depends on who is at the Treasury Department. 

But, yes, I will yield. 

Mr. DAVIDSON. Is it the gentleman’s contention then that OFAC 

and the current sanctions regime is inadequate to the task of preventing sanctions of Asia? 

Chairman MCCAUL. I think the question is what is most effective? And I think the sector-based approach is going to be a more 

effective way to capture capital flow and investment into these five 

sectors that we know are responsible for the buildup of the PLA 

and their war machine. 

An entity-based approach can be manipulated by the CCP as the 

former deputy national security advisor to President Trump has 

just told this committee and testified to. 

I am not saying that sanctions aren’t an effective tool. In fact, 

Mr. Barr and I have had many discussions trying to come to some 
42 

sort of rational, you know, conclusion of this, but it has to be in 

good faith. 

And I think you can take the best of both perhaps and that’s precisely what we are working on. 

Mr. DAVIDSON. Hopefully, we will wind up with good amendments. I yield back. 

Chairman MCCAUL. All I really care about, sir, is we have got 

to stop selling China the technology. We have got to stop investing 

in their war machine, particularly at this dangerous time that we 

find ourselves in as we look at Taiwan and the Taiwan Straits. And 

you look at TSMC and semiconductors and the whole thing. So I 

appreciate your spirited debate. The chair now recognizes Mr. 

Mills. 

Mr. MILLS. Thank you, Mr. Chairman. I think we can all realize 

the significant importance of strengthening not only our supply 

chain and industrial capabilities but also limiting our adversarial 

reliance upon China. 

You know, for far too long we have listened to many people on 

the other side of the aisle talk about the competition with China 

as opposed to what they really are is an adversarial nation. 

We have seen where China continues with their Belt and Road 

initiatives that has expanded out their Eurasian borders, attempted to take Africa, Oceania, in an effort to essentially cutoff 

Western Hemisphere supply chain and further impact America economically while simultaneously utilizing propaganda and misinformation warfare campaigns in developing nations to try and create doubt in American currency value to try and prevent that from 

being utilized as the U.S. global currency. 

Now this is all in an effort, as we know, and the chairman had 

pointed out with the Russia, China, Iran, and North Korea geopolitical alignment, this is an effort to try and attack the West in 

many different facets. But we have to understand that we cannot 

help to continue to propagate that for them. 

I think that’s where I actually agree that the outbound investment into China and critical sectors actually does provide our competition and our adversaries with the invaluable information, 

skills, and innovation that poses potential harm to America’s national security interests. 

Dating back to the 1990’s and potentially even earlier, there are 

obvious instances in which U.S. investments on the ground floor of 

Chinese tech startups have been instrumental in developing China’s current surveillance, defense, and other technological capabilities that threaten the U.S. interests at home and around the world 

and also advancing their alliances. 

So my question is if a U.S. investor supports the development or 

acquisition of a critical technology by a Chinese company, can intellectual property protections or U.S. export controls effectively stop 

that Chinese company from transferring it to China’s military surveillance state? 

Mr. POTTINGER. So the question, could we know in advance if we 

are investing in a Chinese company whether we could prohibit it 

from transferring its—— 

Mr. MILLS. I know you said right now almost every company is 

State controlled. And I do acknowledge that Chairman Xi’s role in 
43 

The CCP is to take over everything. But I am just curious, what 

would be an effective tool that we could utilize that would help to 

prevent this and kind of get a bit of a heads up on it? 

Mr. POTTINGER. Yes, you know, China uses these what they call 

force technology transfer. In other words, it is sort of the price of 

admission for a lot of companies to have access to the Chinese market. 

I think, I mean, on the top of my head you could require that 

they would have to report to their shareholders, which I think 

would be good practice anyway if they were planning on transferring, you know, hard won, hard researched, and developed technologies as a price of admission for getting into that market. But 

it is—— 

Mr. MILLS. And, Mr. Harrell, some argue that China has sufficient resources, domestically and abroad, to invest in the high tech 

companies. In addition to money, what value do U.S. investors 

bring supporting China technologies and ambitions? 

Mr. HARRELL. I think that is a great question, Congressman. Because when a U.S. venture capital company, whether it is like a VC 

company or whether it is a venture arm of a big AI or semiconductor company goes into China, it is not just putting that cash in 

that Chinese company. It is providing expertise to that Chinese 

company on how to go to market. It is probably doing some door 

opening and introductions to potential customers. It is providing 

expertise on how to run that company effectively. There is really 

a lot that goes alongside that investment that is value in addition 

to the cold hard cash itself. 

Mr. MILLS. I think we can all agree that one of the things that 

America needs to do is invest in building up our industrial base, 

ensuring that we have more capacity here at home, stopping our 

reliance upon China, looking at things like eliminating the double 

taxation of Taiwan, which will allow the nearly 92 percent of global 

semiconductor manufacturing to actually be brought to the United 

States and other areas. But critical sectors of technology, research 

and innovations represent the next generation of information. And 

I think that opens up Pandora’s Box as we continue to support 

that. 

I am not trying to be hyperbolic, but the potential applications 

of AI, machine learning, quantum mechanics, hypersonics, and others are difficult to underState. 

The U.S. should absolutely seek to mitigate the threats from our 

adversaries who are actively seeking to beat the U.S. in these research races. And I think that is why it is so critical for us to start 

focusing in on the quantum data computing as well as for the 

quantum entanglement capabilities for AI autonomous drone sets. 

So for that, I yield back. Thank you so much. 

Chairman MCCAUL. The gentleman yields. The chair recognizes 

Mr. Self. 

Mr. SELF. Thank you, Mr. Chairman, and thank you for—I think 

our ground has been well plowed so I want to go a little bit further 

afield. 

First of all, I appreciated Mr. Barr’s comments about the total integration of the Chinese private sector in military. Money is fungible. I think we need to expand our view here. Dual use capability 
44 

in precursor chemicals, the supply chain rare earths, I have not 

heard the rare earth minerals mentioned here at all. And we could 

go on. 

So this is not just technology. And I think we ought to move beyond technology. I realize we may be addressing technology here. 

But the broader picture to me is well beyond technology. 

So I want to go to the WTO and the PNTR. The WTO, the first 

question for you gentlemen, is are they still meeting the policies 

that China had to agree to in order to get most favored nation? 

That’s one question. 

And then when we go to the U.S. PNTR, I understand the concern with repealing that. The tariffs would be larger. But I would 

like for you to comment on is this the standard CVO static scoring, 

if you will, as opposed to the dynamic scoring because U.S. manufacturing would pick up the slack? 

So I would like for you to address both the WTO, are they still 

meeting it and is there anything we can do about it if they are not 

meeting those policies? 

And second when we talk about our PNTR, would you address 

my question on static versus dynamic scoring? Thank you. 

Mr. POTTINGER. Congressman, thanks for those remarks and 

questions. With the WTO, I mean, I’m not a trade expert, but I remember because I had been working as a journalist at the time in 

China writing for the Wall Street Journal when China came into 

the WTO. 

China made all sorts of promises about market access and the 

like in exchange for us bringing them into the WTO and giving 

them market access. I am confident that if you were to ask folks 

over at the U.S. Trade rep’s office, they would tick off a long list 

of promises that were not kept by Beijing. And it is very hard to 

enforce because in cases that we brought in the WTO Beijing has 

been able to run out the clock and sort of game the system in those 

ways. 

The WTO has worked, I think, a lot better for trade between 

countries that enjoy the rule of law. 

Mr. SELF. Of course. 

Mr. POTTINGER. So it is not to knock what we created with that 

system, but by bringing in a single party dictatorship that was intent on not holding and keeping up its obligations. 

When I was working at the White House, I kept a list that my 

staff compiled for me of all of the agreements China had signed 

with the United States that they had abrogated. It was a long list. 

It was several pages. And trade was only the beginning of it. 

Mr. HARRELL. OK. Let me just associate myself with Matt’s remarks on whether China has lived up to its WTO obligations, sir. 

Of course not. I mean, it has been very, very clear for many years 

now that they have not lived up to their obligations under the 

WTO. As Matt says, that is only one of many sort of agreements 

they have made that they have not lived up to. 

On your question about tariffs, I do think tariffs can be a valuable tool to help reduce our dependencies on China. As you note, 

we are dependent on China for certain things like critical minerals 

that are not sort of high technology kind of things but instead go 

into lots of products, including high technology products. 
45 

And I do think it would be valuable for the Administration to 

really take a hard look at the important tariffs that the previous 

Administration started, but to look at kind of what isn’t working 

and where are we still dependent, and maybe critical minerals is 

a good example. We actually do not tariff our imports of critical 

minerals from China. 

And I understand why we do not want to hike prices on critical 

minerals. On the other hand, if we are letting them come in tariff 

free, it is really hard to build a vibrant U.S. ecosystem for critical 

minerals. So I think we do need to look at tariffs through that supply chain lens on how can we wean ourselves off of Chinese supply 

chains. 

Mr. SELF. Well, rare earths, critical minerals, as you call them, 

we do not mine because of our own environmental laws, not because of tariffs on China. With that, I yield back. Thank you. 

Chairman MCCAUL. The gentleman yields. The chair recognizes 

Mr. Stanton. 

Mr. STANTON. Thank you very much, Mr. Chairman. I want to 

thank you and Ranking Member Meeks for holding this important 

hearing today and for your leadership on H.R. 6349. It is much appreciated and much needed. 

The United States and U.S. companies are strong in large part 

because of our commitment to open capital markets, and a belief 

that free flowing capital and knowledge will lead to innovation. But 

spending that capital on critical technology innovation in China 

can lead to serious problems, specifically as it relates to national 

security. 

For example, prior to President Biden’s August 9 executive order, 

U.S. entities were able to invest in China’s Semiconductor Manufacturing International Corporation, also known as SMIC. 

The first question is for Mr. Harrell. Could you tell us why 

SMIC’s technology might worry the United States of America? 

Mr. HARRELL. So SMIC is one of China’s major semiconductor development firms. And one thing we have seen over the last year 

and a half, particularly as the U.S. has put pressure on China to 

deny them access to tooling, is we have seen SMIC and other Chinese companies double down on trying to develop things indigenously in China to overcome the restrictions we have put on their 

semiconductor sector. 

And I think the fact we are seeing China double down makes it 

all the more important to make sure the wall that we have in those 

key high end semiconductors is even higher, which is why I think 

it’s so important to focus on investment in that sector as well as 

export controls. 

Mr. STANTON. The same question—or another question for you, 

Mr. Harrell. When American companies or venture capital firms invest in a business, including in China, they also provide know-how, 

technical transfers, and legitimacy to those businesses. Can you tell 

me why sharing this with China’s critical technology sector will 

hurt U.S. interests? 

Mr. HARRELL. We clearly want to keep our edge here in the U.S. 

in these critical technologies, AI, semiconductors, quantum, things 

like that. 
46 

And as you say, Congressman when an American venture capitalist goes over to China to invest over there, it’s not just the 

money that he or she takes with them. It is opening doors to customers. It is putting board members who help manage the company 

on the board. It is providing them kind of expertise on how to grow 

and how to expand. 

And those are all really important aspects to that company and 

whether that company is going to be able to actually succeed in developing that technology over in China, which we do not want them 

to do. 

Mr. STANTON. This is a question for both Mr. Pottinger and Mr. 

Harrell. What if we do not do it? What are the ramifications of not 

using an outbound investment regime to address concerns about 

the PRC’s critical technology sector? Please touch upon both human 

rights concerns and the impact on U.S. global leadership. 

Mr. POTTINGER. Peter mentioned earlier the example of Sense 

Time, which had come on my radar when I was in office. On the 

human rights front, these are cutting edge technologies that are 

applied specifically for the purpose of monitoring the thoughts, the 

actions, the communications. 

I mean, this is George Orwell’s thought police in action, building 

systems for identifying people based on their ethnic or racial background from a distance so that they can then be put under surveillance or segregated or even sent to a re-education camp. 

So on the military side we’re seeing—you know, you take a company like DJI, for example, right? This is the Chinese heavy weight 

drone manufacturer that has got something like 70 percent of the 

consumer drone market. Well, they are supplying drones that are 

being used for military use on both sides of the conflict in Europe. 

And that was a company that was—it got its lead early investment 

from Americans. 

Mr. STANTON. That is great. Mr. Harrell, anything to add to 

that? 

Mr. HARRELL. No, I think Matt put it very well. 

Mr. STANTON. I will be very brief. My last question, we are investing historic amounts in U.S. critical technology through the 

CHIPS and Science Act. It is so important for the United States 

to be a leader in a semiconductor production and not to undercut 

our investment by also giving a leg up to China in this crucial sector. 

The U.S. Chamber of Commerce supports the Biden Administration’s efforts to develop a thoughtful regime that safeguards American national security and economic leadership without unnecessarily restricting beneficial U.S. business activity. 

Mr. Harrell, can you describe how the Biden Administration’s 

tiered approach in the August 9 executive order tries to balance national security and be beneficial to business activity? 

Mr. HARRELL. I think the Biden Administration, and I think legislation this committee is looking at, really provides an important 

highly tailored approach, right? We are not talking about all sectors. We are not talking about all or even most investment. We are 

talking about a set of investment in sectors that we know are critical to our technological and national security edge. 
47 

The Biden Administration, I think the legislation would accomplish the same goal, also plans to provide clear guidance on what 

are the investments that are prohibited to make it reasonably 

straightforward for companies to know what they and cannot do so 

they aren’t just going to have to hire, you know, armies of lawyers 

to advise them on it. 

So I think we do want, and I think we are expecting, very clear 

guidance on definitions and what kinds of investments are off limits 

Mr. STANTON. Thank you so much. I yield back. 

Chairman MCCAUL. The gentleman yields. The chair recognizes 

Mr. Hill. 

Mr. HILL. I thank the chairman. Thank you, gentlemen, for sharing your views with us today. And I think it is important to note 

that all members on both sides of aisle and in all the committees 

and certainly our China task force want to get to the sweet spot 

on this topic for an effective regime that has a reasonable cost-benefit metrics in order to screen and block where appropriate outbound investments to China. I just think that’s where we are. 

We are going a bit around and around on how this would sit in 

the menu of what we have today from all the lists that we have, 

export controls, tariffs in some instances. And so I want to thank 

you for trying to add clarity to it. 

Mr. Harrell, you, in your testimony, you praise President Biden’s 

investment prohibitions on publicly traded securities issued by Chinese military industrial complex companies, the CMIC designation. 

However, since being put on that list, Hikvision’s revenues are up 

by 30 percent. SINOCAM’s revenues are up 60 percent. China Mobile’s stock price is up 67 percent, Huawei and SMIC went on to 

develop an advanced 5G chip. 

So that does not seem like this system is working. How do you 

expect, you know, an additional layer on that to be more successful? 

Mr. HARRELL. So I think—Congressman, thank you for the question. I think it is important to think through different kinds of 

goals we have with respect to limiting investment in China. So I 

think the goal of the Biden Administration’s executive order from 

last year is really to go after investment in these kind of early 

stage companies that are developing technologies. 

I think that the CMIC list, which President Trump stood up in 

late 2020 and which President Biden has continued, is really to 

take an approach of where we know there is a Chinese company 

that is linked to the military, we are going to say Americans cannot 

invest in that. 

Now maybe those companies can raise money domestically or 

that sort of thing, but we think it’s important that Americans 

aren’t raising money in those big Chinese companies that are 

linked to the military. 

It is not to say that limiting investment is the only tool we 

should take. I think where you have a Chinese company that is 

linked to the military, it is engaged in some activity, like SMIC and 

semiconductors, you also have to have an export controls approach, 

right? Make sure they cannot get the capital. They also cannot get 

the technology. 
48 

And if we find that that isn’t working, maybe at that point we 

need to look at additional measures. But I think that the—I will 

leave it at that. 

Mr. HILL. Let me followup on that and say so that is U.S. only. 

But if we want to maximize the impact to remove the fungibility 

aspect of this and everybody trying to make a living, wouldn’t having whatever decision we take here being put on the OFAC list and 

governed by the Treasury gives us some G7 clout on enforcing like 

a sanctions regime. 

So if you wanted to have maximum pressure campaign here, to 

use a phrase, you might have—they would be on the list. They 

would have export controls over the certain technologies. They 

would have a prohibition on investment, and they would be sanctioned so that our G7 colleagues would actually put them on the 

list and not actually go or—pick a country. Wouldn’t that be the 

strongest possible menu? 

Mr. HARRELL. So I certainly agree we want a multilateral approach to investment restriction. 

Mr. HILL. So if we just do something here, do we get a multilateral approach? 

Mr. HARRELL. I think it is important for America to lead on this. 

And I think having an approach that limits investment and then 

making sure the rest of the G7 comes along, building that diplomatic coalition is important. 

Mr. HILL. Thank you. Let me slip in one question for my good 

friend, Mr. Pottinger, and thank you for your fantastic work in the 

National Security Council. 

The sector approach, I got it. I think every bill we are talking 

about has identified the sectors now, but some of them having really broad listings. You are proposing, or I heard maybe Mr. Harrell 

say, might leave that to regulatory definitions. But AI for example, 

I cannot think of anything more broad. It is integrated in every single thing every single person does. Won’t that require an army of 

lawyers to figure out? What is your thought there, Matt? 

Mr. POTTINGER. Yes. Congressman, it is good to see you. Look, 

no question, I mean, AI is tricky. What Peter was laying out earlier 

was sort of a nexus for looking at where there is a reasonable use 

case for military and intelligence uses, so the application on the 

one hand. And the other is the power of the actual model that is 

making possible all those applications and looking at that. 

I think that it is not clear-cut, I would agree. AI, it is a big deal. 

But I would say this though. AI is already being weaponized 

against us—— 

Mr. HILL. Oh, yes. 

Mr. POTTINGER [continuing]. By a company that Americans invested in, ByteDance. It is a TikTok platform. 

Mr. HILL. I will yield back, Mr. Chairman. That is an example 

of where naming that company is better than saying we want to 

cutoff investment to AI. I will yield back to the chair. 

Chairman MCCAUL. Well, I appreciate the gentleman’s diplomacy. I think there is a sweet spot here as you said. Hopefully, we 

will get some of this resolved tomorrow. The chair now recognizes 

Mr. McCormick. 
49 

Mr. MCCORMICK. Thank you, Mr. Chair. U.S. investors in 58 investment deals related to China’s semiconductor industry over the 

last 3 years represented 17 percent roughly of all investments into 

the Chinese artificial intelligence industry. 

I am a big pre-market guy. And I know we have some bills on 

the table to talk about investing with the conversations going on 

today. But, Mr. Pottinger, specifically, given your experience in the 

Trump Administration, how would you compare the Biden Administration versus the Trump Administration’s limitations and direction as far as what can we do to keep us from investing? 

I know we talked about this kind of ad nauseam today. But specifically, how would you compare the Administrations and the way 

they are facing down this specific problem? And obviously we in 

Congress have some ability to affect this, and we want to. But if 

you could compare side-by-side the most recent Administrations, 

what is the difference? 

Mr. POTTINGER. Yes. I think it might actually be a good test case 

for how you eventually find that sweet spot because there were 

some things that the Biden Administration did that I wish that we 

had done in the Trump Administration. And then there were a couple places where the Trump Administration was stronger on this 

specific area. 

For example, when President Trump signed those two executive 

orders prohibiting U.S. investment into Chinese companies, he included subsidiaries of those companies. So even those there was 40 

some odd companies that the Department of Defense put on the 

list, that immediately accordioned out to about 1,100 companies. 

The Biden Administration, I was disappointed that they got rid 

of the subsidiary requirement. But on the other hand, they expanded the authority to cover not only Chinese military affiliated 

companies, but also Chinese companies that are involved in egregious human rights violations, the surveillance state stuff that we 

have been talking about. That was a good move. 

So I think if you put these things together, you end up with a 

stronger whole. 

Mr. MCCORMICK. OK. Great. And so that does not necessary increase—our proposed bills do not necessarily increase executive 

permission. It is basically an overall blanket to help us direct 

money away from these Chinese—— 

Mr. POTTINGER. I think one of the things it does, I mean, if you 

have got a law to support, in essence, the Trump and Biden executive orders, you give them—you give it much more credibility. You 

give spine to executive branch officials who might be afraid that 

they are going to get sued by the companies that end up in the 

cross hairs. 

But if you have got a law behind that, a court in the United 

States is going to give that a lot more weight than a mere pen 

stroke from a President. 

Mr. MCCORMICK. Excellent. Mr. Matheny, do you believe that 

had the United States banned outbound investments to Chinese 

about 15 years ago or so would have made a different in the ultimate outcome of the advancement of AI and other technologies that 

are possibly harmful in the competition and strategic outcome with 

what we have done? 
50 

Mr. HARRELL. It is obviously hard to know the counterfactual 

history. But I think there are many cases over the last 15 years 

where we have seen a U.S. investor come in to a Chinese high tech 

company. We talked earlier about Sense Time. Matt talked about 

ByteDance, the owner of TikTok where that early U.S. investment 

was absolutely essential to that Chinese company being able to 

thrive and grow both domestically and in China and then ultimately around the world. 

And so I do think just looking at the history of these kinds of 

cases that had we had a tailored investment restriction regime 10, 

15 years ago, we probably would see a less well-developed Chinese 

high tech industry in some of these key technologies. And that 

would be very much in our interest. 

Mr. MCCORMICK. I think in some ways it is kind of a rhetorical 

question. It takes investment to make R&D, and it takes investment to make a company grow. That is exactly what happened. We 

were a big part of that, almost 20 percent. 

Mr. Pottinger, do you think any of our partner nations and allies 

have adopted restrictions to their citizens investing in Chinese defense sectors? 

Mr. POTTINGER. Not that I am aware of. I think that there is sort 

window guidance in some countries where, you know, we have seen 

investment drop off from Japan, for example, into certain Chinese 

sectors. But, again, I think this is one of these areas where we lead 

and eventually others follow. 

The United States, President Trump was the first official anywhere to put human rights sanctions on Chinese officials who were 

involved in the Uyghur genocide. It wasn’t Europeans. It wasn’t 

anyone anywhere else. But eventually Parliaments in Europe 

began to follow suit. Canada and others followed the lead of the 

United States. 

Mr. MCCORMICK. And I know I am out of time. But just a yes 

or no question. Does the PRC limit their citizens and private industry from investing in our industries? 

Mr. POTTINGER. They heavily regulate depending on where they 

want to see strategic gains. So there is a constant give and take 

in terms of the instructions that industry receives in China for 

coming into the U.S. 

Mr. MCCORMICK. So with that comment, just that it is an unfair 

system. I yield. Thank you, Mr. Chair. 

Chairman MCCAUL. That is an excellent point. Thank you for 

bringing that up. The chair now recognizes Mr. Moran. 

Mr. MORAN. Thank you, Mr. Chairman, and thank you to the 

witnesses today. A very important topic we are talking about today. 

I first want to, though, thank the chair and Representative Barr 

for working to reconcile these two approaches that have been 

talked about so much, the entity-based approach, the sector-based 

approach are really reflected in the different bills that are going 

through this committee and the Financial Services Committee. 

I agree with the chairman that there is going to be a way, and 

we must find a way, to reconcile these because both have some 

issues that we need to deal with. Both do not actually get us completely to the end that we are all after, and that is frankly to quit 

assisting and helping China build its technology to the point where 
51 

it is harmful to the United States national security interest and 

our economic interest. That is certainly not the end that any of us 

want. 

So I applaud both the chair and Representative Barr for their 

work on this matter. And I just wanted to say I am encouraged by 

the discussion today because it tells me we are going to get somewhere eventually. 

Now other countries have developed and implemented formal 

outbound investment restrictions, South Korea, Taiwan, and even 

China themselves have done that. I would like to direct my first 

question to Mr. Harrell. 

What has been the economic outcome for countries like South 

Korea and Taiwan by imposing outbound investment restrictions? 

Mr. HARRELL. Thank you very much for the question. I know 

that when the Biden Administration was looking at this issue, they 

looked at both South Korea and Taiwan which have, frankly, fairly 

narrow, but I think nonetheless important, limits on semiconductor 

investment by their companies in China. Obviously, both Korea 

and Taiwan have very advanced semiconductor companies. And a 

number of years ago, those countries restricted or imposed a regime to make sure that their companies weren’t putting the most 

advanced technologies in China. 

Now that was a really pretty narrow only going after really the 

very, very bleeding edge of the technology. I think we need something broader than that. What the Biden Administration would do 

is broader than that. 

But the reality, looking at those cases, is the costs were quite 

limited. I mean, South Korea and Taiwan have the world’s most 

successful, or are among the world’s most successful, semiconductor 

companies. We obviously have some here too. 

And so I think what that experience shows is that you very much 

can impose a tailored and scoped restriction on investment in 

China and have very much a global leading company here at home. 

Mr. MORAN. Thank you, Mr. Pottinger. Do you have anything to 

add to that? 

Mr. POTTINGER. I think that covered it pretty well. 

Mr. MORAN. Good. I also want to ask you guys about the fact 

that China openly seems to want to overthrow the U.S. dollar as 

a global currency. They have partnered with countries to create 

BRICS. We have seen the BRICS conference. There is an argument 

that something such as BRICs would offset U.S. financial leadership and that a concept like outbound investment will expedite that 

shift. 

On the contrary though, if the U.S. develops an outbound regime 

we would, in my opinion, be able to garner support from allies like 

Japan and the UK to develop their own. 

Mr. Pottinger, I will start with you this time. How impactful 

would that be for the U.S. national security for us to do that? 

Mr. POTTINGER. Well, I do think that there is an argument that 

can be made. And I have heard it made by Treasury officials that 

if we overuse our SDN sanctions authority, it creates an incentive 

for other governments, particularly adversarial governments, to try 

to find work-arounds to the U.S. dollar. So that might be a consideration as well in this debate. 
52 

But if I understood correctly, your broader point is what is China 

doing to try to undermine? 

Mr. MORAN. That is correct. 

Mr. POTTINGER. Yes, they are, on the one hand, asking their 

trade partners increasingly to settle trade in Chinese currency. 

They have launched a Central Bank digital currency, which I certainly wouldn’t want my savings denominated in Chinese digital 

currency, which could just evaporate from your account at any moment. But that is another tool they are using. 

Perhaps the most important one is they are trying to build new 

plumbing for settling transactions worldwide, sort of like our Swift 

banking system. They are trying to come up with successor systems 

to that that bypass U.S. dollar and Treasury—— 

Mr. MORAN. Before my time is up, I want to ask you about one 

more thing that Mr. Barr had mentioned because one of the holes 

that we are trying to fix here is that if we go at this alone, we still 

have the problem that many of our allies around the world can still 

invest in China, and they will not feel hardly the impact of what 

we need them to feel to be able to change their behavior. 

So what are we doing to work with other nations to ensure that 

whatever we do here, they are joining us in that effort against 

China? 

Mr. POTTINGER. I think in part it is pointing to the example of 

what happened with Ukraine where companies still wanted to get 

in there and open shops or buy oil or what have you from Russia. 

And people convinced themselves that commerce would mitigate 

against something as crazy as invading your neighbor and getting 

hundreds of thousands of people killed. But that is exactly what 

Vladimir Putin did. 

I think it is simply leading our allies to see the long-term benefits of tackling this problem. I think many of them will. 

Mr. MORAN. Thank you to both of you guys. Mr. Chairman, I 

yield back. 

Chairman MCCAUL. The gentleman yields. We have two more 

members if the two witnesses have the time. Mr. Huizenga. 

Mr. HUIZENGA. Thank you, Mr. Chairman. And let me first start 

by saying I know this is an issue that is near and dear to you. It 

is certainly an issue that is near and dear to me and Mr. Barr and 

others. We have got a number of folks on the Foreign Affairs Committee who also serve on the Financial Services Committee, which 

has been sort of the epicenter of a lot of the sanctions regimes that 

have gone on. 

And, you know, my own experience goes back to my third term 

where I was named chair of the Monetary Policy and Trade Subcommittee and was brought in for a SCIF review regarding a 

CFIUS review of A123 Battery, a company that was sold to a Chinese company. Michigan has been sort of the epicenter of a lot of 

the debate surrounding batteries and Gotion, for example. But really a lot of it is centered around automotive. 

And so we have been dealing with this collectively for many, 

many years because this is a real issue. It is a problem. And 

COVID, I think, just underscored this in ways that nobody really 

expected, everything from paper masks to ventilators, and, you 

know, having the Defense Production Act, the DPA being invoked 
53 

to bring about medical equipment, not to mention pharmaceuticals, 

not to mention, you know, the myriad of food items and all the 

things that we have become, in my opinion, overly dependent on 

China. 

So Congress has maybe been collectively maybe—well, maybe I 

will put it this way. Because I think the conversation has been 

happening within Congress, but maybe society as a whole has kind 

of come late to the game a bit with the dangers and the overdependence on China. 

And so we have—my whole point in this is we have many common goals, which is to limit the economic and military influence 

that China has certainly over the United States and, I would 

argue, in the Indo-Pacific region. 

So what we are having the discussion about is the methods. All 

right? And what I personally am looking for is making sure that 

we have an effective and real way of curbing and bending that influence that China has had. 

We have done a lot of work on that with the Financial Services 

Committee over the years, the work that has been here on the Foreign Affairs Committee is important, the China Select Committee. 

I have been working with Mr. Barr for a long time on these issues. 

And in my mind, Treasury is still sort of that main thrust of where 

the most effective sanctions can be. 

But as we know with a lot of other things here in Washington, 

DC, whether it is the border, whether—you pick the issue, if you 

are not willing to enforce the rules and the laws that are already 

on the books in the systems that are in place, just adding a new 

system isn’t necessarily the solution on that. And I just want to be 

very careful that we are doing that. 

So I do have some concerns about the authority being turned 

over to an agency that may not have the experience in that. I have 

little confidence in the Commerce Committee for example or, you 

know, some other committee, State Department, I mean, that sort 

of to me does not make a whole lot of sense. The State Department, 

that is not their bailiwick. 

So I have a quick question for both of you. If you can let me 

know, are you aware of any U.S. companies that have invested in 

Chinese companies that have gone into partnership with the PLA? 

Go ahead. 

Mr. POTTINGER. Sure. One that I was looking at as I was crafting 

the testimony was a company called 4Paradigm. 4Paradigm is, you 

know, an AI firm in China that has reportedly sold software to China’s military for what they called, quote, battalion command decisionmaking and human machine learning. That company was seeded by Goldman Sachs, Sequoia Capital, and probably some others 

as well. 

Another would be Biren Technology, B-I-R-E-N. That is an advanced semiconductor designer that wants to compete with Nvidia 

in China. In fact it is already on the Commerce Department’s entity list for potential ties to, quote, weapons of mass destruction, advanced weapon systems, and high tech surveillance. And that one 

was invested by a couple of American venture capital firms. 

Mr. HUIZENGA. OK. I know my time has expired. I do not know, 

Mr. Harrell, if the chairman will indulge. Otherwise, we can do 
54 

this in writing. So I appreciate that. Mr. Chairman, I yield back. 

Thank you. 

Chairman MCCAUL. Thank you. The Chair now recognizes Mr. 

Lawler. 

Mr. LAWLER. Thank you, Mr. Chairman. Last year Chairman 

McCaul and I sent a letter to BIS Secretary Estevez with questions 

about how commerce is implementing U.S. export control laws in 

response to China exporting goods to designated State sponsors of 

terrorism, Cuba, North Korea, Iran, and Syria. 

The indirect resourcing of State sponsors of terrorism from U.S. 

entities is a serious concern and should be met with strict reform. 

It took the Biden Administration 6 months to respond to our inquiry, and they seemed to share our commitment for preventing 

U.S. tech from being illicitly acquired by our adversaries. But actions certainly speak louder than words. So we will see what they 

do on that front. 

Just as concerning though as using U.S. tech for nefarious purposes is U.S. investment in nefarious technology. Not only should 

we not be providing resources to terror, but we should not be providing their funding. It is past time to establish outbound investment restrictions to ensure U.S. dollars are not funding the development of tech that will be used counter to our national security 

interests. 

Is it possible to utilize or expand existing export controls to restrict U.S. capital investment into China? 

Mr. HARRELL. So my understanding, and I know there has been 

a bit of debate on this, but my understanding is that even with the 

important reforms to U.S. export controls that Congress enacted in 

2018, the Export Control Reform Act, it remains really technology 

focused and is just not well suited through ECRA and through the 

export controls to go after dollars where there is not a technology 

flow alongside that. 

Mr. LAWLER. So are you of the mindset that we need to develop 

a different vehicle or regime by which to do this? 

Mr. HARRELL. I am. I think it is very important to develop what 

I would view as different but also complementary. I mean, it should 

be done in parallel, a complementary regime to go after the dollars 

so that Congressman, as you say, not only are we not giving the 

Chinese technology, we are not investing in their ability to develop 

the technology. 

Mr. LAWLER. Are you aware currently of any instances in which 

U.S. Government tools, such as export controls, were unable or insufficient to mitigate the risk presented by U.S. investments into 

China and any specific examples? 

Mr. POTTINGER. Well, earlier, Peter was talking about the example of Huawei where President Trump took action to prevent 

Huawei from being able to acquire high end semiconductors that 

had been made with American technology. 

That approach bought time. It slowed down Huawei, but ultimately they were able to fashion a work-around using new companies that they had established, bringing in equipment that hadn’t 

really been geared for sale to Huawei but ended up in service of 

Huawei’s goals. 
55 

So I think with investment, it is sort of a similar principle at 

work except it is the capital flows as opposed to the technology. By 

limiting the capital flow, you are able to go after early stage things 

that you wouldn’t see in time to apply necessarily an export control 

restriction. 

Mr. LAWLER. This past May, leaders of the G7 countries issued 

a joint statement recognizing that outbound investment could be 

important in complementing existing export controls and inbound 

investment controls as well. 

When President Biden issued Executive Order 14105, which focused on outbound investment in August, to your knowledge did he 

consult further with our G7 partners? 

Mr. HARRELL. My understanding is the Administration has been 

in a very active discussion with G7 partners, that American diplomacy was instrumental in getting that statement that you alluded 

to in May. 

I think ultimately the way the U.S. is going to get our partners 

to come along is the way we always have, which is a combination 

of us acting and us engaging in diplomacy. 

I think it is going to take the European Union and some of these 

others a bit of time. But I am optimistic that with us acting and 

strong diplomacy by the executive branch, but also by Congress, we 

will pull them along with us. 

Mr. LAWLER. Are you aware of any similar executive actions 

being taken by any of our allies and partners? 

Mr. HARRELL. So the European Union has begun a regulatory 

process to look at this. Obviously, we are going to have to keep up 

the pressure on them to get it over the finish line, but they have 

begun a regulatory process on this. 

Mr. LAWLER. Great. Thank you. I yield back. 

Chairman MCCAUL. The gentleman yields. I want to thank the 

witnesses for their valuable testimony. Additional questions may be 

submitted by members of the committee that we will ask you to respond to in writing. 

Pursuant to committee rules, all members may have 5 days to 

submit statements and questions for the record. Without objection, 

the committee stands adjourned. 

[Whereupon, at 12:42 p.m., the committee was adjourned.] 
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APPENDIX 
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STATEMENT FOR THE RECORD FROM REPRESENTATIVE 

CONNOLLY 
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WITNESS TESTIMONY SUBMITED FOR THE RECORD FROM 

MR. MATHENY 
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RESPONSES TO QUESTIONS SUBMITTED FOR THE RECORD 
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