As the new Congress ramps up its oversight efforts, concerns about China and the threats it poses to the United States have emerged as a leading bipartisan focus. Last week, two House committees—the House Financial Services Committee and the House Armed Services Committee—focused their respective first hearings of the new Congress on China. In the Democratic-controlled Senate, the Senate Foreign Relations Committee held its second hearing of the 118th Congress on “Evaluating U.S.-China Policy in the Era of Strategic Competition.” Perhaps the most important takeaway from the trio of hearings is that concerns about China are not a Democratic or Republican issue. Both parties emphasized the need for the United States to counter the geopolitical, economic, and military threats that China poses.
Unsurprisingly, Republicans repeatedly raised the Chinese surveillance balloon that floated across the United States last week as well as Chinese espionage. Significant attention was also given to supply chains, including the tech sector’s dependence upon China, and Chinese investment. The hearings demonstrated that countering China will remain a top priority for Congress.
Congressional Focus on Chinese Supply Chains
Throughout all three hearings, Members voiced concerns about supply chains located in China and the associated economic and national security implications. Key exchanges included:
- Rep. Elissa Slotkin (D-MI) stated that our “economic security is connected to China” because of Chinese supply chains. Admiral Harry Harris, the former Commander of the U.S. Pacific Command, explained that the majority of components for energetics come from China or are controlled by Chinese supply chains, calling it “shocking.”
- Peter Harrell, the former Senior Director for International Economics and Competitiveness, National Security Council and National Economic Council, testified that one of the most important focuses going forward should be our supply chain resilience. He said that the U.S. still has significant supply chain vulnerabilities, particularly in the pharmaceutical industry, and that the administration should undertake a comprehensive review of what the U.S. is importing to better understand where we’re vulnerable.
- In response to a question from Rep. Young Kim (R-CA) about policy recommendations for moving critical supply chains out of China, Clete Willems, former Deputy Assistant to the President for International Economics and Deputy National Economic Council Director, testified that the Biden administration should look to negotiate new trade agreements, with Taiwan as a top candidate. He said that if the United States wants companies to move supply chains outside of China, the government has to give them good alternatives.
Forecasting Oversight and Investigations. The focus on supply chain vulnerabilities in both the military and civilian space will likely lead to Members of Congress going directly to the relevant actors, especially federal government contractors. Companies that significantly rely on Chinese supply chains, particularly in important sectors like technology, defense, energy, and healthcare, should be prepared to face questions and document requests from Congress and to explain steps they are taking to ensure supply chain resilience and security.
Bipartisan and Bicameral Interest in Further Limiting Outbound Sensitive Technology and Investments in China
In 2021, President Biden signed an executive order expanding on a Trump administration executive order prohibiting U.S. persons from purchasing securities in “Chinese companies that undermine the security or democratic values of the United States and our allies.”
During the House Financial Services Committee hearing, Democratic Members pressed Harrell on whether we need to implement additional mechanisms for examining outbound U.S. investments in China. Harrell recommended:
- expanding limits on certain U.S. investments in China;
- creating a narrowly targeted review mechanism for outbound investments; and
- building out a list of Chinese military and surveillance companies.
But he also testified that the United States needs to pressure corporations to better understand where they are at risk as it relates to China.
During the Senate Foreign Relations Committee hearing, Senator Chris Van Hollen (D-MD) asked Deputy Secretary of State Wendy Sherman how we can prevent sensitive technology originating in the U.S. or its partners from landing in Chinese hands. Deputy Secretary Sherman responded that the State Department is looking into a pilot program on outbound investments of sensitive technologies, and that the Department will work closely with legislators on the issue.
Several Republican Members expressed concern that any new limits would inhibit a free market. Representative Erin Houchin (R-IN) asked witnesses in the House Financial Services Committee hearing whether the government can overreach in overseeing U.S. investments. Thomas Feddo, founder of national security consulting firm Rubicon Advisors, testified that while the U.S. does need outbound investment screening, the solution should be very narrowly tailored to the problem and the government should be wary of creating a new bureaucracy.
Forecasting Oversight and Investigations. As Congress educates itself on these issues, private sector actors will likely receive requests for information, or to testify at committee hearings. Companies whose supply chains reach into China will be of strong congressional interest. Further, companies making investments in China and Chinese-based technologies will be of interest to Members of Congress looking to use oversight and investigations as an educational tool to inform legislation. Companies should understand their current investments and dependencies on China, as well as conduct careful due diligence before investing in China and remain vigilant about what they are funding.
New House Select Committee on Strategic Competition with China
House Members from both parties also recently voted overwhelmingly (365 yeas to 65 nays) to establish the Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party focused on economic, technological, and security issues. The new chairman of the Committee, Representative Mike Gallagher (R-WI), is known for being a more bipartisan Member of the House and has stated that the main focus of the Committee will be to restore supply chains and end critical economic dependencies on China. One prominent Democrat, Ro Khanna, was quoted saying the appointment of Rep. Gallagher as the Chair indicated the Committee would be a “serious effort.” The Committee has the power to issue subpoenas and will be an important mechanism for the House to push the issues and investigations discussed during last week’s hearings that are clearly of great interest to Members. Companies with ties to China can expect to be of interest to the Committee.
Responding to Congressional Inquiries
Responding to congressional inquiries requires different strategic considerations from typical white-collar litigation or lobbying, and knowledge of House and Senate rules and practices is important to avoiding critical missteps that could expose firms to undue legal or public relations crises. Please reach out to Wilson Sonsini attorneys Jessica Heller, Andy Dockham, Beth George, or Janet Kim with any questions about congressional inquiries or how Wilson Sonsini can assist you in any matter.
