In this week's edition:

• The Big Picture 
• The Select Committee on China Report 
• Commerce Official Says Chip Export Controls Are Effective 
• Chinese Chip Firm Purchases U.S. Software Despite Biden’s Restrictions
• Semiconductor Manufacturing Moves from China to Vietnam 
• Xi Visits Vietnam 
• Sec. Yellen on U.S.-China Economic Relationship 
• U.S. Blacklists Entities and Citizens from Russia, China, UAE, and Turkey 
• Putin Praises Russia-China Ties 
• U.S. Supports Taiwanese Cybersecurity Against Chinese Attacks

The House has left Washington for the holiday recess, while the Senate remained in town to attempt to conclude negotiations over a foreign aid package for Ukraine and border security. Just before leaving, Congress passed the National Defense Authorization Act (NDAA), which included several China-related provisions, while a significant committee of jurisdiction moved forward legislation targeting China. While the NDAA includes provisions aimed to strengthen the U.S. military’s ability to counter China, measures which would have weakened U.S.-China economic ties through outbound investment screening were dropped.

The House Foreign Affairs Committee voted on 4 bills to strengthen the Commerce Department’s abilities to police China. Chairman McCaul (R-TX) has been vocal about his frustration with the Department’s Buruea of Industry and Security (BIS), specifically its licensing procedures and its lack of transparency. Last week the Chairman released a report which called for significant reforms of BIS. The Committee passed 4 bills:

• H.R. 6602 would amend The Export Control Reform Act of 2018 relating to the review of the interagency dispute resolution process, expanding the group of stakeholders;
• H.R. 6606 would include a duty to protect trade secrets in BIS’ mandate;
• “The Sanctions List Harmonization Act” would direct the coordination of trade restriction lists between Federal agencies; and
• “The Maintaining American Superiority by Improving Export Control Transparency Act,” would require reporting to Congress on BIS licensing decisions every 90 days.

The bills touch on some of the proposed reforms in McCaul’s report.

The Committee passed an additional bill, “The Counter Economic Coercion Act” which would allow the U.S. to “mitigate the impact of economic coercion” by China on U.S allies and partners through changing and eliminating duties, tariff-rate quotas, export control licenses, regulatory processes, and other trade tools. Despite its overwhelming support in the Committee, a few Republicans took issue with the amount of power it yields to the Executive Branch.

Meanwhile, Republicans on the Oversight and Accountability Subcommittee opposed the Biden Administration’s decision to remove China’s Ministry of Public Security’s Institute of Forensic Science from the BIS Entity List in exchange for China’s cooperation to restrict fentanyl ingredients from being exported to the U.S. The Institute was added to the Entity List in June 2020 for “human rights violations and abuses in the implementation of China’s campaign of repression, mass arbitrary detention, forced labor and high-technology surveillance against Uighurs, Kazakhs, and other members of Muslim minority groups in the Xinjiang Uighur Autonomous Region.” Rep. Cory Mills (R-FL) called the move a “dangerous precedent” to set with foreign entities. Assistant Secretary for Export Enforcement Matthew Axelrod argued that it is the government’s responsibility to do everything in its power to address the 100,000 Americans that die from fentanyl each year. Axelrod told the Committee that in exchange, China has cracked down on fentanyl ingredient suppliers and restarted reports to the International Narcotics Control Board database, which helps to track narcotics shipments.

Outside of Congress, the Administration continues to try to stabilize the relationship through persistent high-level talks between officials following the Biden-Xi meeting in November. It is unlikely that there are material developments on China before the end of the year.

The House Select Committee on Strategic Competition has put forth policy recommendations to address the economic and technological competition between the United States and the Chinese Communist Party (CCP). The committee's recommendations address the terms of the U.S. economic relationship with the People’s Republic of China (PRC), focusing on national and economic security and maintaining democratic values. Read ACG Analytics’ full analysis here.

Assistant Secretary for Export Administration Thea Kendler testified to the House Foreign Affairs Committee that it is unlikely that Huawei will be able to meet market demand for the advanced semiconductors in its latest smartphone. Additionally, the chip in the phone has a lower performance threshold than the chips in Huawei’s previous models. Therefore, Kendler purports, “[U.S.] export controls are meaningful in slowing China’s advanced technology acquisition.” Kendler’s assertion is unproven as China excels at scaling up technologies and only time will tell their ability innovate to meet market demand in spite of U.S. restrictions.

Meanwhile, Commerce Secretary Gina Raimondo said that Nvidia can sell AI semiconductors to China, but that the U.S. should still restrict the most advanced chips.

Brite Semiconductor, a Chinese chip designer that has purchased U.S. software and gained support through American funding, has avoided chip restrictions from Washington despite offering of its services to as many as 6 Chinese military suppliers. Brite receives funding from a U.S. venture capital firm supported by Wells Fargo and gains access to sensitive U.S. technologies from 2 software companies based in California, Synopsys and Cadence Design. There is no indication that Brite’s relationships with U.S. companies breach any regulations.

The firm’s success highlights the gaps in the Biden Administration’s efforts to restrict the flow of advanced technologies to China over concerns of military use.

As relations between the U.S. and China face uncertainty and instability, the Biden Administration and corporations are looking to increase trade with friendlier business partners, such as Vietnam. The country is gaining interest from some of the world’s largest semiconductor and other advanced electronics manufacturing companies.

In October 2023, foreign direct investment in Vietnam surged by 54% when compared to the same time last year, totaling $15.3 billion. Almost 75% of the investments were directed towards processing and manufacturing.

“The U.S. is at a government level recognizing the growing importance of Vietnam as a manufacturing hub for U.S. multinationals,” stated Asia-Pacific Chief Economist at S&P Global Market Intelligence, Rajiv Biswas. “They want to tap into that capacity of Vietnam to be part of U.S. supply chains and electronics manufacturing.”

Chinese President Xi Jinping visited Vietnam for the first time in 6 years and met with Vietnamese Communist Party leader Nguyen Phu Trong. The leaders agreed on building cooperation through maritime patrols, trade, and tackling crime. China described the talks as outlining a “new positioning of relations” between the 2 nations. Vietnamese press also described the talks positively. They reportedly did not discuss their competing territorial claims in the South China Sea. President Biden visited Vietnam in September and bolstered political and economic relations.

Treasury Secretary Janet Yellen spoke on the U.S.-China economic relationship at the U.S-China Business Council’s 50^th Anniversary Dinner in Washington, DC. She advocated for a change in China’s economic policy and explained that the country’s state-driven approach could deter investors. American companies have consistently voiced concerns about the inequitable business landscape in China, citing inadequate safeguards for intellectual property and advantages given to domestic rivals. Concerns also escalated this year due to a crackdown on U.S. consulting firms in China.

Sec. Yellen pointed out that foreign companies are reassessing their investment plans for China, emphasizing that this should be a cause of concern for Beijing.

She added that she plans to visit China again in 2024 to discuss areas of concern and improve communication with her counterpart. She stated that the U.S. will pursue increased transparency regarding China’s non-market practices and enhance collaborative efforts on financial regulations and climate cooperation.

The U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announced additional Russia-related sanctions against approximately 240 entities, including companies based in Russia, China, the UAE, Singapore, Tajikistan, Turkey, and Switzerland. The restrictions target entities that are involved in assisting Russia’s defense industry and are “responsible for bolstering Russia’s future energy production and export capacity.”

The U.S. has also imposed Russia-related sanctions against 23 individuals from Russia, China, Pakistan, the Republic of Korea, and Turkey.

President Putin praised increasing cooperation between Russia and China, elevating expectations for further trade and investment between the 2 countries going forward. Putin estimated that trade value with China may reach $230 billion this year, $30 billion higher than the previous estimate, despite sanctions levied for Russia’s invasion of Ukraine. Washington and Brussels have both expressed serious concerns over the strengthening of the relationship between the 2 autocracies.

The Treasury Department and U.S. cybersecurity company SimSpace Corp. are helping Taiwanese government officials protect against Chinese cyberattacks. According to a Taiwanese cybersecurity expert, “Taiwan has near zero capability to defend itself from these advanced cyberattacks [from China].”

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