A China brawl looms for House Republicans

Republican lawmakers are trying to come together on China policy, after an internal feud derailed investment restrictions from riding on this year’s must-pass defense bill.

It’s far from a slam dunk, according to GOP lawmakers and aides.

The rift is revealing deep tensions between national security and economic priorities when it comes to implementing a policy objective that many Republicans will be running on this year: curtailing China’s global influence.

The stakes are high for the business community.

House China hawks, led by Foreign Affairs Chair Michael McCaul (R-Texas), are confident they have the upper hand with legislation that would try to curb capital flowing from the U.S. into certain sectors of China’s economy, including AI and quantum computing. They’re facing off with Financial Services Chair Patrick McHenry (R-N.C.) and top Republicans on his committee, who want to instead use company-specific sanctions.

McHenry and his deputies warn that a new kind of government crackdown on U.S. investment in China could end up hurting Western influence.

McCaul and McHenry are working with House leadership on negotiating a compromise early next year. McCaul said in an interview that Republicans are looking at a hybrid approach that could include sanctions and a prohibition to invest in certain sectors. But he left open the possibility that the sides may be irreconcilable.

McCaul said his version, which is backed by outside conservative groups and has support from Democrats, could probably sail through the House. It’s also backed by Sen. John Cornyn, a fellow Texas Republican who’s been driving the issue across the Capitol.

“If there’s a way to do this, we will,” McCaul said of the compromise talks. “If it becomes problematic, another option is we could put our separate bills on the floor separately.”

McCaul boiled down the rift like this: “My approach is more China-hawkish. It’s more national security-focused and based, where Patrick’s — I’ll let him define his bill — but I see it as more of a Wall Street approach.”

McHenry responded in a statement: “We need a solution that cuts off revenue for the CCP’s military-industrial complex without kneecapping one of our greatest strategic assets — our capital markets.”

Rep. Andy Barr, who drafted the sanctions bill and sits on both Foreign Affairs and Financial Services, said in an interview that his entity-based approach “is what the private sector deserves and needs.” (Although, some in industry also have concerns about the impacts of Barr’s bill.)

“They need a red-light, green-light approach,” Barr said. “Something that provides them with certainty and clarity unlike a broad, sector-based approach or reverse-CFIUS that risks creating a new bureaucracy that would regulate Americans’ investments abroad.” (CFIUS, or the Committee on Foreign Investment in the United States, is an inter-agency group that polices foreign acquisitions of U.S. businesses for national security concerns.)

McHenry, who is retiring from Congress at the end of his term, said he’s committed to working with House colleagues on legislation that uses sanctions and export controls. But he also signaled he has limits.

“This is an important debate that Congress must have, but our arguments should be rooted in policy, not platitudes,” he said. “We can all say we’re tough on China, but at the end of the day if your approach advances Xi Jinping’s own goal of targeting Western investment in Chinese companies, I wouldn’t put my name on that.”