HFSC Foreign Investment Hearing

House Committee on Financial Services

Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets

Investing in our Rivals: Examining U.S. Capital Flows to Foreign Rivals and Adversaries Around the World

Tuesday, November 15, 2022


  • Members on both sides agreed that U.S. investment in Russia and China creates macroeconomic, investor protection, and national security concerns.
  • Anthony Gonzalez (R-Ohio) asked about implementation of the Holding Foreign Companies Accountable Act.


Opening Statements
Subcommittee Chairman Brad Sherman (D-Calif.)

In his opening statement, Sherman noted not all capital is equal and said equity capital and risk capital do more to build a capitalist economy. He also said Americans investing in Chinese companies create a lobbying interest in the U.S. to support the success of those companies. He added that American investment in Chinese companies also creates an incentive to transfer U.S. technologies to those companies. Sherman concluded by calling for transparency around which Chinese companies are raising money in the U.S., noting there needs to be registration for major deals.

Rep. Anthony Gonzalez (R-Ohio)

In his opening statement, Gonzalez said Republicans would continue to remain engaged and aggressive on policy measures regarding China and Russia.

Chairwoman Maxine Waters (D-Calif.)

In her opening statement, Waters noted that each year billions of dollars of capital from the U.S. are invested into companies owned, controlled, or affiliated with China or Russia. She said this undermines our national security and pointed out that dozens of groups and funds have not divested from Russia. She concluded by emphasizing that this is not a partisan issue.


Courtney Alexander, Senior Researcher, United Food & Commercial Workers International Union

In her testimony, Alexander focused on the inclusion of public employee pension money in the outflow of capital from U.S. private equity firms to China. She said there is a need for private equity firms to disclose their investments in countries of concern and said she found it hard to trust that private equity can sufficiently police itself when it invests in China and other countries of concern. She also said it is fundamentally wrong for public employees’ retirement to fund any collaboration with China’s repressive surveillance state. Alexander urged the Subcommittee to give public pension funds, regulators, and American citizens the tools to hold private equity accountable to U.S. national security and human rights interests by mandating public disclosure of all subsidiaries and investments in countries of national security concern.

Claire Chu, Senior Analyst, Janes Group

In her testimony, Chu noted the national security community has been reticent to recognize the international financial system as a warfighting domain. She said the Pentagon does not want to encroach on what it considers to be Wall Street’s territory, and that bankers and financiers are uninterested in the “politicization” of private markets and do not feel compelled by “non-material” U.S. foreign policy objectives to contradict their profit-seeking, fiduciary responsibilities. Chu said that the unprecedented sanctions imposed on Russia raised the specter of the U.S. taking a similar approach with Beijing if red lines were to be crossed. She said that while the scale of U.S. economic and financial exposure to China is significantly greater than it is to Russia, the U.S. can use financial sanctions more effectively than any other country in the world. Chu said that private funds essentially function as unregistered investment vehicles that are not required to verify or disclose investors’ identities, source of funds, or other credentials. She added that this presents an ideal environment for Chinese state-owned entities to gain nontransparent access to U.S. businesses and technologies of strategic significance. She recommended that the U.S. establish an interagency committee or task force to coordinate the federal government’s policies and activities in response to economic and financial issues related to foreign policy and national security.

Jeff Ferry, Senior Economist, Coalition for a Prosperous America

In his testimony, Ferry said Congress, the media, and independent regulators like the SEC recently focused on the risks posed to U.S. investors from Chinese companies directly listed on U.S. stock exchanges but said this does not address the bulk of “bad actor” Chinese companies that are present in American passive investment products. Ferry explained that these companies’ presence is in the form of over 4,200 A-share and H-share companies found throughout a multitude of financial vehicles, such as Exchange Traded Funds (ETFs) and index mutual funds, that have received little or no regulatory scrutiny or fiduciary due diligence. He then said tens of millions of Americans are unwittingly exposed to these A-shares in their investment portfolios and retirement investment accounts. Ferry argued that U.S. investors are inadvertently subsidizing Chinese companies involved in activities that are contrary to the national security, economic security, and foreign policy interests of the U.S. Ferry testified that since the financial industry will not lead, Congress must. He called on the U.S. government to take the necessary steps to ensure passive investment and government pensions are safe and secure from adversarial, authoritarian regimes like China. He concluded by reiterating that Congress must pass laws to compel the financial industry to comply with the national interest.

Jeffrey A. Sonnenfeld, Senior Associate Dean of Leadership Studies, Yale School of Management

In his testimony, Sonnenfeld noted that the companies who pulled out of Russia did better than those who stayed. He discussed the enormous impacts these corporate exits had on Russia’s economy and added that Russia’s economy is imploding.

Question & Answer

Holding Foreign Companies Accountable Act

Rep. Anthony Gonzalez (R-Ohio) asked if Chu was confident in the SEC’s agreement and whether the Holding Foreign Companies Accountable Act would be implemented consistent with Congress’ intentions. Chu replied that there should be China-specific due diligence and processes in place.

Variable Interest Entities (VIEs)

Gonzalez asked Alexander if any of her union’s pension assets were invested in Chinese VIEs or index funds. Alexander said she did not know the full extent of their pension investments but noted they tried not to directly invest in funds that invest in China. Gonzalez noted the answer is almost certainly yes and encouraged her to tell those in charge of managing her union’s assets to be more thoughtful in that regard. Rep. David Scott (D-Ga.) asked if investments in Chinese companies were inherently riskier. Chu answered affirmatively, citing multiple reasons including VIEs, which she said allow Chinese companies to circumvent laws. Rep. Brad Sherman (D-Calif.) asked if low-cost index funds should be allowed to invest in VIEs. Chu said that it should not be an option for U.S. investors.


Rep. Jim Himes (D-Conn.) asked what the U.S. strategy should be regarding financial and capital market entanglements with China. Ferry replied that the U.S. should decouple its economy from China over time, adding that American capital should be funding investments in U.S. industry and in friendly nations. Rep. Waters (D-Calif.) asked Ferry for potential solutions. His answer focused on sanctions harmonization. He noted that all arms of the government must operate together and take a resolute, comprehensive position against investing in our adversaries. He said that American venture funds continue to invest in Chinese high-tech companies, which will ultimately benefit the Chinese military. He called for more transparency, visibility, and sanctions.

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