U.S. Investment in China’s Capital Markets and Military-Industrial Complex

Co-Chairs Fiedler and Borochoff, distinguished commissioners and staff of the U.S.-China Economic and Security Review Commission, and fellow panelists, it is an honor to participate in today’s hearing.

I aim to emphasize two fundamental points in my remarks, and look forward to offering
additional examples and details in discussion:

• First, bilateral capital flows between the United States and China today represent a novel feature, and one with novel importance, in a broader national security competition.
• Second, as in most domains of integration, the Chinese Communist Party (CCP) deliberately pursues asymmetric positioning in international capital flows. Understanding that asymmetric positioning will demand detailed monitoring. Redressing it will require creativity, courage, and a willingness to trade short-term reward for long-term advantage.

Thank you for the opportunity to contribute to this important dialogue. In the following
testimony, I will briefly address what I believe to be novel about the strategic context of today’s U.S.-China contest, identify the ways in which U.S. investment in China’s capital markets may generate national security risks, and offer a series of related policy recommendations.

To underscore the bottom-line up front: I am concerned that the national security community lacks appropriate analytical frameworks for assessing the impact of capital market integration on the U.S.-China contest. This commission and Congress have a vital role to play in collecting and sharing relevant unclassified information; promulgating new reporting and legally mandated disclosure requirements; and, perhaps most critically, informing the U.S. public about the scope of connections between U.S.-domiciled pools of capital and China’s military and national security apparatus. The national security risks apparent in bilateral capital flows between the United States and China indicate that U.S.-China economic relations require a systemic recalibration as a part of a broader competitive strategy for long-term peacetime competition with the CCP.

Read the full written testimony here.