Gallagher Committee Spreads Limelight

 While Congress takes a Summer recess, Chairman Mike Gallagher (R-WI) and his Congressional Select Committee on the Chinese Communist Party continue to badger communists and their supporters at every turn, from coastal investment elites to row crop farmers in Iowa.

Thursday, Mr. Gallagher, Ranking Member Raja Krishnamoorthi (D-IL), and Rep. Ashley Hinson (R-IA), hosted a roundtable event in Dysart, Iowa to highlight the Chinese Communist Party's agricultural technology theft.   

 “The US technological ecosystem is a bucket that currently has massive holes in the bottom and we continue to pour billions and billions of R&D dollars into it every year. We need to plug these holes. We could do it with export controls, research security, outbound capital restriction, but for whatever reason, we've chosen not to. 

'This old burglar has robbed their home dozens of times before, told you that he's coming back tonight, and you still leave your front door unlocked and you're valuables lying around in plain sight,” said Mr. Gallagher.

The panel of farmers and seed merchants assembled was quick to remind the lawmakers that the China Trade is vital to the health of American farms.

“As we consider our relationship with China in the context of Food and Agriculture,  we must do so strategically with firm understanding of our country's national and agricultural interests," said one panelist, a sixth-generation corn and soybean farmer.

“We need to be deliberate and thoughtful, please. While some suggest that the US revoke China’s permanent most favored status nation status, the move would decimate agricultural exports and could deal a great blow to the American farmer. Instead we need to diversify our export markets to other countries especially in Southeast Asia.”

Participants continued to emphasize the need for a focus on trade development while the lawmakers did their best to direct the conversation to the committee’s pet topics.    

 “My perception is that our relationship is non reciprocal. So for Chinese businesses that want to get access to the American market, do business here, we're pretty wide open.  We've had some reform of the CFIUS process,  we're starting to pay attention to things like suspicious land purchases, the the Smithfield purchase, but if you're an American trying to do business in China you face a host of obstacles. It is certainly not as wide open as it is here,” said Mr. Gallagher.

Click HERE for a transcript of Mr Gallagher's remarks.

Committee staff stayed in Washington last week, drafting sweeping demands for the White House and financial industry to address capital allocation, securities regulation, and the Red Menace:

Outbound Investment

Ahead of the Administration's anticipated executive order to curtail US outbound investment to the People's Republic of China (PRC), Gallagher sent a letter calling on the President to prioritize transparency while adopting several core principles in the executive order, namely:

• Include both private and public market investments flowing to China in new restrictions;  “Public market investments represent the majority of U.S. capital flows to the PRC. Any rules that exempt them will fail to address the bulk of the national security threat.”
• Restrict US capital from flowing to organizations connected to the CCP’s genocide, the CCP’s technological rise, and the Chinese military; 
• Protect shareholder rights by forcing Chinese companies to meet the same due diligence standards as American companies;
• Ensure these investment restrictions are predictable and provide certainty to investors. Avoid creating an onerous, case-by-case screening process;
• Consult with allies and partners before implementing new restrictions and urge them to adopt parallel restrictions on investing in China.

[Letter to President Biden]

 Endowments & Pensions

Mr. Gallagher and fellow committee members introduced the Dump Investments in Troublesome Communist Holdings Act (DITCH Act). This bill would force non-profits, university endowments, public pension plans, and any other tax-exempt entity to divest from Chinese companies or lose their tax-exempt status.

Defines disqualified Chinese companies as any company:

• Incorporated or based in China,
• Has more than 10 percent of the stock (by vote or value) owned by some combination of Chinese entities, or
• Is directly or indirectly owned by a Chinese entity, including through a derivative instrument or other contractual arrangements.

Allows the Treasury Secretary to grant a waiver to certain non-profit entities if their need to hold certain Chinese assets outweighs the national security risk.

• Requires the Secretary to publicize the reasoning.
• Requires entities granted a waiver to submit regular reports.
• Requires the Treasury Secretary to publish a report within 360 days and then annually describing the patterns of outbound investment into China generally, including a sectoral breakdown.

A companion measure was introduced in the Senate by Sen. Josh Hawley (R-MO).  The bill's sponsors had previously introduced the DITCH Act in the 117th Congress.

• Click HERE for bill text

Asset Management

“Following a rigorous examination of BlackRock and MSCI’s Chinese investments decisions,”  Chairman Gallagher and Ranking Member Krishnamoorthi launched an investigation into the two Wall Street firms, requesting extensive information, including:

• A list of all the companies included on MSCI indexes, and for each company, list the indexes on which that company is included. 
• A detailed description of the factors they consider when including companies in indexes.
• All policies, procedures, and related guidance documents pertaining to conflicts of interest and how (BlackRock or MSCI's) Oversight Committee and other governing bodies have applied such policies, procedures, and related guidance with respect to the engagements with public or private entities based in or with significant operations in the PRC.
• A full list of indexes provided, specifically identifying each index that includes any company identified in this letter, and a detailed summary of these indexes including a breakdown of U.S. investor exposure, as of June 30, 2023, January 1, 2023, and January 1, 2022.

The lawmakers also asked BlackRock and MSCI:

• If they are able to perform thorough due diligence on all PRC companies included in their indexes, including those listed on the USG red-flag lists or any other red-flag lists. And if so, how and through what means do they do so? If not, what is their process for determining whether to include those companies in their indexes? 
• What transparency do they provide to the public and to investors regarding the inclusion of red-flag companies in their indexes?

letter to BlackRock HERE. letter to MSCI HERE