US risks 'funding our own destruction' if investor capital flows to Chinese defense firms, key lawmaker says

• Rep. Mike Gallagher urged President Biden to widen limits on US investments in China.
• Forthcoming restrictions should cover US participation in Chinese public markets, he said.

Rep. Mike Gallagher, R-Wisconsin, has appealed to the Biden administration to introduce stricter curbs on US investment in China, according to a letter obtained by the Financial Times.

In the letter to President Biden, he said new limits on US investments expected soon from a White House executive order should include Chinese public markets where stocks and bonds are traded — not just direct investments from private equity and venture capital funds.

"If American capital continues to flow to Chinese military companies, we are at risk of funding our own destruction," Gallagher, who is chairman of the House Select Committee on the Chinese Communist Party, later told the FT.

"Wall Street needs to recognize that investing in critical technology sectors in the PRC endangers our military service members, imperils the targets of the Chinese Communist Party's human rights abuses, and enhances systemic risks for the global economy. That's a deadly cocktail the American people didn't order and don't want to be served."

His letter cited estimates that put US private investments in China at more than $200 billion, compared to over $1.1 trillion of US capital in stocks and bonds on China's public markets.

A "sizable portion" of that money goes directly to tech companies with ties to China's military and the Chinese Communist Party, he added.

"Despite these clear risks and the US Government's longstanding efforts to address national security threats stemming from inbound foreign investment, no mechanism exists for the US Government to require disclosure of, much less restrict, outbound capital flows into such foreign adversary companies," Gallagher wrote.

His comments follow earlier US efforts to curb Chinese access to critical technologies, such as semiconductors, quantum computing, and artificial intelligence.

Gallagher's committee is also probing BlackRock and MSCI over their roles in funneling American investments into shares of Chinese firms that have been flagged by the US over security concerns or human rights abuses, the Wall Street Journal reported on Tuesday.

The congressional panel said it found that American investors have funded 60 such companies, and BlackRock has invested $429 million through five of its funds.

Meanwhile, foreign investors have been souring on China in recent months as the country's post-COVID economic rebound has disappointed.