On November 15, 2017, the U.S.-China Economic and Security Review Commission (USCC) published its 2017 Annual Report to Congress on the national security implications of the U.S.-China economic relationship.  In addition to an annual review U.S.-China trade issues, the report includes chapters focused on China’s pursuit of dominance in computing, robotics, and biotechnology and on Chinese investment in the United States.

Regarding the Chinese government’s efforts to acquire and develop indigenous capabilities in high-technology sectors, the report’s findings highlight growing risks and challenges for the United States.  The report finds that “China’s state-directed industrial policies are slowly closing market opportunities for U.S. and other foreign firms in China and nurturing Chinese competitors that will be able to challenge U.S. companies in the United States and third country markets.”  The report also notes that “the 13th Five-Year Plan reaffirmed the state’s long-held commitment to integrating civilian and military technology development, stating that the Chinese government seeks to ‘encourage flow of factors such as technology, personnel, capital, and information between the economic and defense sectors’ and strengthen the ‘coordination between the military and civilian sectors in the sharing of advanced technologies, industries, products, and infrastructure.’”

According to the report, this intermingling of state and commercial objectives “raise[s] concerns about the ability of U.S. regulators to manage the risks of investment from state-influenced entities.”  Specifically, the report notes the following challenges regarding Chinese investment in the United States:

  • “First, most Chinese FDI in the United States (outside of real estate investments) is targeting industries deemed strategic by the Chinese government.”
  • “Second, some private Chinese companies operating in strategic sectors are private only in name. Instead, the state extends its influence through an array of measures, including financial support and other incentives, to influence business decisions and achieve state goals.”
  • “Third, some Chinese firms are utilizing increasingly sophisticated methods to acquire strategic U.S. entities. Chinese companies employ a myriad of methods to circumvent U.S investment laws and regulations, including obscuring government-influenced investments through shell companies, conducting cyber espionage campaigns to financially weaken and then acquire U.S. firms, and claiming immunity from U.S. lawsuits under [the Foreign Sovereign Immunities Act].”

The report is available on USCC’s website, here.