Washington, DC – China’s investments in its technology and defense capabilities could pose risks to U.S. economic stability and national security, according to two CSET experts who evaluated Beijing’s use of capital markets and offered their recommendations at a U.S.- China Economic and Security Review Commissions hearing today.

CSET Research Fellow Zachary Arnold spoke on the panel “The Role of the State in China’s Stock, Debt, and Venture Capital and Private Equity Markets” to discuss China’s use of  financial capital flows and the state’s prominent role in allocating capital to specific firms and sectors. 

“We should restrict U.S. investment, consistently and transparently, in companies that violate human rights or pursue other harmful activities, but we can’t assume these policies will affect China’s technological development,” Arnold said. “If controls are imposed, U.S. policymakers do have some ways to make them more likely to have an impact. Any investment restrictions should be multilateral, and focus on the few transactions that are likely to pose serious national security risks.”

In order for the United States to maintain its technological leadership, Arnold’s recommendations focused on building on the country’s ability to recruit top talent, relying on strong allied support and dominant positions in fundamental technologies, and supporting a market-driven economy to boost U.S. innovation. 

In a later panel, “U.S. National Security and China’s Stock, Debt, and Venture Capital and Private Equity Markets,” Weinstein discussed China’s military-civil fusion strategy (MCF) and its application drawing from her research and latest CSET publication. 

“China’s MCF development strategy is a holistic approach to national development that ensures that new advancements simultaneously advance both economic and military development. Although this concept is not novel, China’s MCF strategy under Xi Jinping takes a new approach, one that many experts believe supersedes those of his predecessors,” observed Weinstein.  

Weinstein elaborated specifically on the use of university investment firms and China’s talent programs as part of China’s MCF strategy, noting, “Chinese policy documents call for the construction of a ‘national defense S&T talent team’ that utilizes ‘superior whole-of-society educational resources.’”

Her recommendations included establishing an interagency working group to bring awareness to China’s MCF efforts, creating a database containing open-source due diligence materials on Chinese organizations, providing the Securities and Exchange Commission with educational resources such as Chinese language and area studies expertise, and improving supply chain audits and assessments through updated industry reporting guidelines and compliance requirements.

Founded in early 2019, the Center for Security and Emerging Technology at Georgetown University produces data-driven research at the intersection of security and technology, providing nonpartisan analysis to the policy community.

Media seeking interviews can contact Adrienne Thompson at 240-688-3285 or Adrienne.Thompson@georgetown.edu