Eight Questions for House Financial Services Committee on China

This week, the House Financial Services Committee will hold a hearing, Combatting the Economic Threat from China. Exploring the “risks to U.S. interests posed by China’s economic and geopolitical actions,” the committee will seek insight on investment screening and international financial flows, among other things.

Concern over China and its impact on American economic competitiveness has become an area of shared bipartisan interest over the last few years. Early in the 118th Congress, members of the House of Representatives voted in overwhelming bipartisan fashion to establish a Select Committee on Strategic Competition between the United States and the Chinese Communist Party.

To inform the Financial Services Committee’s examination of the “economic threat from China,” BPC has outlined the following questions which merit their consideration.

1. Closely examine the competitiveness implications of digital currency. Meltdowns and fraud among cryptocurrency companies over the last several months have raised doubts among U.S. lawmakers about the economic promise of cryptocurrency and, more broadly, digital assets. The Chinese Communist Party (CCP) has, however, continued to move forward with a central bank digital currency (CBDC) that is, in part, a potential threat to the U.S. dollar’s status as global reserve currency. American policymakers must explore the implications of this and what an appropriate regulatory architecture might be for digital currency. In addition to restrictions on the use of China’s CBDC, what steps do the Federal Reserve, other federal agencies, and private institutions need to explore in pursuit of that regulatory architecture?
2. Commit to and ensure a significant role for the private sector in financing economic activity. In its hearing memo, the Financial Services Committee charged the CCP with “state-led, mercantilist economic policies” that undermine U.S. companies and economic interests. In turn, the committee asserted, the United States must “recommit to free markets” and “maintaining an open, vibrant, and resilient economic system.” Over the last few years, Congress has authorized, often with bipartisan approval, hundreds of billions of dollars for what many call a “new industrial policy.” There is potential tension between such industrial policy and this committee’s rejection of “mercantilist” policy. In what ways can financial institutions of all types be involved in devising new funding models for Congress’ ambitions without crossing the line between mercantilism and an “open, vibrant” market economy?
3. Carefully balance private investment decisions with national security interests. The U.S. government screens foreign investments in American companies; scrutiny has grown more intense in recent years. Many policymakers, in Congress and the administration, have called for the same process to be applied to investments by American companies in countries such as China. The business community has been split on this issue, and the calls for scrutiny of outbound investment appear to run counter to this committee’s dedication to free markets. Yet it seems clear that some measure of concern is warranted. How can the U.S. government and American financial companies best balance national security concerns with the continuing need for reliance on global investment for our economy to thrive?
4. Consider the relationship between trade, economic security, and national security. Over the past decade, the U.S. goods trade deficit with China has exceeded $300 billion annually. The deficit for 2022 is likely to approach $400 billion. What impact, if any, do large and recurring deficits have on U.S. productive capacity, competitiveness, and our ability to innovate?
5. Enhance the United States’ position as the top destination for global entrepreneurial talent. China is losing its attractiveness as a destination for global talent, especially entrepreneurs. A Chinese entrepreneur who left the country for Singapore told the New York Times that “entrepreneurs are pessimistic. As long as people are worried about their assets, they’ll register their companies in Singapore and put their money here.” At the same time, flows of global talent to the United States have slowed in recent years. With policymakers focused on enhancing U.S. competitiveness, now is an ideal moment to enhance our own allure to entrepreneurs and innovators from around the world. How can American financial institutions work with the federal government to attract and fund entrepreneurs here and ensure that their startups’ success benefits the U.S. economy?
6. Explore new and productive ways of financing supply chain resilience. Many members of Congress, spurred by pandemic-era shortages and bottlenecks, have evinced concern regarding supply chain vulnerabilities and overreliance on individual countries for certain commodities and other products and services. Financial institutions play a vital role in supply chain resilience, financing exports, facilitating deals, and supporting infrastructure. What can policymakers do to help shape international financial flows in ways that promote not only investment but also supply chain resilience?
7. Address the future of defense production and its role in both national and economic security. The Defense Production Act (DPA) is currently set to expire in 2025. After invocations by both Presidents Trump and Biden, now is the time to consider what the next evolution of the law looks like. How should we reform existing laws to prepare the nation to respond to any potential conflict with China?
8. Examine the role of U.S. venture capital in domestic economic growth and global innovation. American venture capital has for several decades been a key driver of not only U.S. entrepreneurs but also global startups in many different countries. This includes China, where American venture investors have poured tens of millions of dollars in recent years. At the same time, Chinese investors have taken significant stakes in many American startups. Even as venture funding in the United States has hit record levels, its global share has fallen, and China’s has risen. How can policymakers strengthen American venture capital’s historic domestic and global roles and to what extent should national security interests shape those roles?