April 8, 2024
Proposals to Regulate U.S. Outbound Investment to China
Introduction
issues, in part in response to high-profile PRC greenfield
The U.S. government has generally supported an open
investments in the United States and U.S. investments in
investment environment at home and abroad to promote
China, particularly in strategic sectors (e.g., semiconductors
U.S. economic growth, sustain the U.S. position as a
and biotechnology). U.S. investments include the creation
premier destination for foreign direct investment (FDI), and
of research and development centers, production facilities,
ensure the competitiveness of U.S. companies. The U.S.
and joint ventures with the PRC government and PRC
government’s interagency Committee on Foreign
firms. Some Members say U.S. portfolio investments
Investment in the United States (CFIUS) reviews a small
support strategic PRC firms and also should be regulated.
subset of foreign inbound investments, primarily mergers
and acquisitions, that could result in foreign control of a
U.S. firms have benefitted from the ability to invest and sell
U.S. business and raise potential national security concerns.
in China as a top global market since the 1990s. Despite the
Since 2016, some Members of Congress have focused on
commitments it made to join the World Trade Organization
the potential U.S. economic and national security effects of
in 2001, the PRC maintains policies that require firms to
certain U.S. outbound investments to the People’s Republic
localize production in China and transfer technology to
of China (PRC or China), including the transfer of U.S.
PRC firms in order to sell or operate in the market. Since
technology and know-how in sensitive or strategic areas.
2014, PRC practices have included the issuance of
The 118th Congress is considering legislation to strengthen
additional industrial policies and economic security
foreign investment review authorities and restrict some U.S.
measures. The U.S. Chamber of Commerce, among other
investment in the PRC and other “countries of concern” that
business groups, has expressed support for the Biden
Administration’s efforts “to develop a thoughtful regime
involves dual-use and critical technology. In response to
congressional activity, in August 2023, President Biden
that safeguards American national security and economic
issued Executive Order (E.O.) 14105 to establish a targeted
leadership without unnecessarily restricting beneficial U.S.
business activity.”
outbound investment program. Some countries (e.g., the
At the same time, the Chamber has
advocated for an approach that is “narrowly tailored to
PRC, South Korea, Taiwan) have regimes that govern some
outbound investments. While the E.O.’s proposed scope of
target specific national security concerns in a transparent,
efficient, and predictable manner,” follows “clear
covered activity is limited, new U.S. outbound rules would
, workable
rules,” and avoids creating a chilling effect on business
depart from longstanding U.S. economic policy. Opponents
argue that U.S. sanctions and export control tools are
activity.
sufficient to address national security risks. Proponents
Congressional Action
argue that new measures are needed to preserve a market-
Congress has sought to address what some Members
based climate and counter PRC trade and investment rules
characterize as statutory, regulatory, and implementation
that incentivize and require the transfer of U.S. technology
gaps with regard to CFIUS and export controls. Some
and advanced capabilities to PRC competitors to the benefit
proposed legislation broadly aims to sustain and rebuild
of the PRC government. The 118th Congress is debating the
U.S. production, technology, and innovation capabilities
scope of U.S. restrictions through hearings, oversight of the
and counter PRC trade and investment policies of concern.
E.O. implementation, and proposed legislation.
Proposals have included notification requirements,
Background and Policy Debate
prohibitions in certain sectors, and a case-by-case review
process broadly similar to CFIUS that some call a “reverse
Between 2016 and 2018, Congress led efforts to strengthen
CFIUS” (Text Box).
U.S. foreign investment review and considered regulating
some outbound activities. Enactment of the Foreign
Select Legislation on Outbound Investment
Investment Risk Review Modernization Act (FIRRMA,
Enacted legislation in the 117th Congress includes
Title XVII, Subtitle A, P.L. 115-232) in 2018 enhanced
Consolidated Appropriations Act, 2023 (P.L. 117-328), enacted in
authorities for CFIUS to review, mitigate, or restrict
December 2022, directed Depts. of Commerce and the Treasury to
inbound foreign investments in U.S. businesses involved in
report on an outbound investment initiative and the resources required
critical technologies, critical infrastructure, or sensitive
to establish and implement it. The agencies released their status reports
personal data, and certain real estate transactions. Other
in March 2023.
proposed FIRRMA provisions—including on U.S.
Proposed legislation in the 118th Congress includes
outbound investment in China—were diluted or eliminated
National Critical Capabilities Defense Act of 2023 (H.R. 3136)
during congressional and executive branch deliberations,
would create a new interagency committee to review and block or
following business pressures and other policy
modify U.S. investments involving “national critical capabilities” in
considerations. Members instead reformed U.S. export
“countries of concern.”
controls to regulate some critical and emerging dual-use
Outbound Investment Transparency Act of 2023 (S. 2678)
technologies and technology transfer abroad. Since
proposed a notification scheme for certain sectors/ investments and was
FIRRMA’s enactment, Congress has returned to these
included in the Senate-version of the National Defense Authorization Act
https://crsreports.congress.gov
Proposals to Regulate U.S. Outbound Investment to China
(NDAA) for FY2024 (S. 2226). The Act was excluded from the enacted
Multilateral Cooperation
NDAA.
Some legislation (e.g., H.R. 6349) would direct the U.S.
Preventing Adversaries from Developing Critical Capabilities
government to coordinate with allies and partners to
Act (H.R. 6349) would prohibit or require notification with respect to
develop comparable regimes. In May 2023, the G7
certain activities of U.S. persons involving covered sectors in countries of
countries issued a joint statement recognizing “that
concern. It would codify key aspects of E.O. 14105.
appropriate measures designed to address risks from
outbound investment could be important to complement
existing tools of targeted controls on exports and inbound
Some Members advocate for an entity-based sanctions
investments, which work together to protect our sensitive
approach to restricting investments, rather than a sectoral
technologies from being used in ways that threaten
approach. For example, H.R. 760 would direct the President
international peace and security.” The U.S.-EU Trade and
to impose blocking sanctions on firms tied to PRC military
Technology Council reiterated the G7 language, and also
and surveillance activities. In February 2024, committees
emphasized a “common interest in preventing the narrow
held hearings to debate H.R. 6349 and H.R. 760. Some
set of technological advances that are assessed to be core to
experts say a sectoral approach could be augmented by a
enhancing the military and intelligence capabilities of
sanctions approach by including portfolio investments and
actors who may use these capabilities to undermine
banning investment in PRC firms already subject to other
international peace and security, from being fueled by our
U.S. government restrictions.
companies’ capital, expertise, and knowledge.” The
European Commission is considering outbound investment
Executive Branch Action
measures as part of its economic security strategy.
E.O. 14105 directs the Department of the Treasury to create
a new targeted outbound investment program. The E.O.
Key Issues for Congress
reiterates a U.S. “open investment” posture that promotes
Approaches to a U.S. outbound investment regime differ
“competitiveness, innovation, and productivity,” and
with regard to relevant countries, sectors, and activity to be
support for cross-border investment, where “not
covered. Most legislation targets China; some include Iran,
inconsistent with the protection of United States national
North Korea, and Russia. H.R. 6349 most closely reflects
security interests.” It asserts that “advancement by countries
the Biden Administration’s approach, and would expand the
of concern in sensitive technologies and products critical
covered technologies and countries of concern. Some
for the military, intelligence, surveillance, or cyber-enabled
Members favor the legislative process to set “statutory
capabilities” constitutes an “unusual and extraordinary
boundaries” on any new rules. Some Members support
threat” to U.S. national security.
more restrictions than the E.O. program, while others have
raised concerns about the scope of new rules and whether
The E.O. authorizes a program with features that include:
they could discourage investment in the U.S. or erode U.S.
• A two-tiered system that (1) prohibits certain U.S.
competitiveness. As Congress considers whether and how
outbound investments in “countries of concern”
to regulate outbound investment, key questions include:
involving sensitive technologies and products that pose
an acute national security risk, and (2) requires
• How should the U.S. government best organize to
notification for investments involving technologies
implement an outbound investment regime? What
with a lower risk profile.
should the proper role and balance of national security
• “Covered national security technologies and products,”
and economic agencies be in operating such a regime?
broadly identified as those in the (1) semiconductors
How might Congress consider potential areas of
and microelectronics, (2) quantum information
overlap between U.S. inbound and outbound review
technologies, and (3) artificial intelligence (AI) sectors.
authorities?
The E.O. indicates that not all activities or parts of
• What visibility does the U.S. government have into
these sectors, particularly in AI, would be covered.
• Unlike CFIUS, no case-by-case review of transactions.
U.S. investment activity in China without a notification
• Requirements would apply only to investments
or review process? What current authorities does the
U.S. government have to review, mitigate, and restrict
involving the PRC (including Hong Kong and Macau).
these activities? How effective have these tools been in
On August 14, 2023, Treasury issued an advance notice of
addressing activities of concern?
proposed rulemaking (ANPRM) on the E.O., requesting
public input through September 2023. Treasury anticipates
• What is the best approach for delineating which sectors
that covered transactions will include acquisitions of equity
and activities should be subject to notification,
interests, greenfield investments, joint ventures, and certain
restrictions, and exceptions? Are there specific sectors
debt financing transactions. Excepted transactions likely
and activities particularly important to U.S. national
include those made by limited partners into venture capital
security where there should be restrictions in place?
(VC) or private equity (PE) funds that are determined to be
Are there areas where discretion to review transactions
solely passive and below a de minimis threshold. The E.O.
on a case-by-case basis would be more appropriate?
cites the importance of regulating VC/PE as such deals can
• How would proposals affect U.S. competitiveness as a
involve transfers of technology and capabilities. Treasury
destination for investment, particularly compared to
indicated in its ANPRM that it is disinclined to broadly
major economies that lack such regimes? What are the
control U.S.-PRC financial flows, noting the benefits.
views of affected U.S. firms and other stakeholders?
https://crsreports.congress.gov
Proposals to Regulate U.S. Outbound Investment to China
•
Karen M. Sutter, Specialist in Asian Trade and Finance
IF12629
Cathleen D. Cimino-Isaacs, Specialist in International
Trade and Finance
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to
congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress.
Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has
been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the
United States Government, are not subject to copyright protection in the United States. Any CRS Report may be
reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include
copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you
wish to copy or otherwise use copyrighted material.
https://crsreports.congress.gov | IF12629 · VERSION 1 · NEW