Theyre playing us for fools\u201d \u2014 Chuck Schumer, U.S. Senate Minority Leader<\/em><\/p>\n<\/blockquote>\n \u201cI knew what was critical in 1958 \u2014 tanks, airplanes, avionics. Now, truthfully, everything is information. The world is about information, not about things,\u201d said Paul Rosenzweig, who worked with CFIUS while at the Department of Homeland Security during President George W. Bushs second term. \u201cAnd that means everything is critical infrastructure. That, in some sense, means CFIUS really should be managing all global trade.\u201d<\/p>\n As a senior official at the Treasury Department, which oversees CFIUS, put it: \u201cAny time we see a company that has lots of data on Americans \u2014 health care, personal financial data \u2014 thats a vulnerability.\u201d<\/p>\n When CFIUS was formed, in the 1970s, the companies safeguarding important technology were so large that any takeover attempt by foreigners would be certain to attract attention. Now, much of the cutting-edge technology in the United States is in the hands of much smaller firms, including Silicon Valley startups that are hungry for cash from investors.<\/p>\n The gap in oversight became a more urgent problem in 2015, when China unveiled its \u201cMade in China 2025\u201d strategy of working with private investors to buy overseas tech firms. A year earlier, Chinese investments in U.S. tech startups had totaled $2.3 billion, according to the economic research firm CB Insights. Such investments immediately skyrocketed to $9.9 billion in 2015. These amounts dipped the following year, as the Obama administration voided a high-profile deal, but analysts say Chinas appetite to buy U.S. firms and technology is still strong. In 2017, there were 165 Chinese-backed deals closed with American startups, only 12 percent less than the 2015 peak.<\/p>\n U.S. President Donald Trump addresses the crowd | Oliver Contreras-Pool via Getty Images<\/p>\n Yet the failure to investigate some forms of Chinese investments in American technology has flown under the radar as President Donald Trump goes tit for tat with Beijing, imposing tariffs meant to punish China for unfair trade practices. Critics noted on Monday that Trumps tentative agreement to drop his tariff threat in exchange for Chinese pledges to purchase billions of dollars more in American goods avoided any mention of the outdated foreign-investment policies that have alarmed lawmakers across the political spectrum.<\/p>\n On the Senate floor Monday, Minority Leader Chuck Schumer<\/a> lashed out at Trumps approach.<\/p>\n \u201cChinas trade negotiators must be laughing themselves all the way back to Beijing,\u201d he said. \u201cTheyre playing us for fools \u2014 temporary purchase of some goods, while China continues to steal our family jewels, the things that have made America great: the intellectual property, the know-how in the highest end industries. It makes no sense.\u201d<\/p>\n National security specialists insist that such a stealth transfer of technology through Chinas investment practices in the United States is a far more serious problem than the tariff dispute \u2014 and a problem hiding in plain sight. A recent Pentagon report bluntly declared: \u201cThe U.S. does not have a comprehensive policy or the tools to address this massive technology transfer to China.\u201d It went on to warn that Beijings acquisition of top-notch American technology is enabling a \u201cstrategic competitor to access the crown jewels of U.S. innovation.\u201d<\/p>\n Some congressional leaders concur. Senate Majority Whip John Cornyn<\/a> (R-Texas) regularly warns his colleagues that China is using private-sector investments to pilfer American technology. China has \u201cweaponized\u201d its investments in America \u201cin order to vacuum up U.S. industrial capabilities from American companies,\u201d Cornyn said at a January hearing<\/a>. The goal, he added, is \u201cto turn our own technology and know-how against us in an effort to erase our national security advantage.\u201d<\/p>\n Legislation to expand the CFIUS budget and staff has been moving slowly through the halls of Congress amid pushback from Silicon Valley entrepreneurs and business groups. The legislation would give CFIUS new resources to scrutinize bankruptcy purchases and establish stricter scrutiny of start-up investments.<\/p>\n China will not close its door to the world \u2014 we will only become more and more open\u201d\u2014 Xi Jinping, President of China<\/em><\/p>\n<\/blockquote>\n As months passed without any action, and the issue of Chinese investments got overshadowed by tariff fights and feuds between Beijing and the Trump administration, national security experts grew more concerned, fearing that Congress lacked a sense of urgency to police transfers of sensitive technology.<\/p>\n The White House began exploring what more it could do on its own, asking the Treasury Department in late March to offer a list of potential Chinese investment restrictions within 60 days.<\/p>\n Finally, earlier this month, Senate and House leaders announced plans to mark up the bill, starting a process that could lead to passage later this year.<\/p>\n Still, the failure to act more quickly may itself be jeopardizing national security. At a hearing in January, Heath Tarbert, the Treasury Department assistant secretary overseeing CFIUS, testified that allowing foreign countries to invest in U.S. technology without making sufficient background checks \u201cwill have a real cost in American lives in any conflict.\u201d<\/p>\n \u201cThat is simply unacceptable,\u201d he said.<\/p>\n Last October, Chinese President Xi Jinping took the podium before 2,300 Communist Party delegates to deliver his expansive vision for Chinas future.<\/p>\n Xi was speaking at the partys 19th Congress, a summit held every five years to choose the nations leaders in the Great Hall of the People in Beijing, the expansive theater right off Tiananmen Square. Speaking in front of a giant gold hammer and sickle framed by bright red drapes, Xi held forth for 3\u00bd hours, declaring that China would look outward to solve its problems.<\/p>\n \u201cChina will not close its door to the world \u2014 we will only become more and more open,\u201d Xi declared to his rapt audience of party leaders, many of them having close ties to the billionaire investors who represent China in the global market. \u201cWe will deepen reform of the investment and financing systems, and enable investment to play a crucial role in improving the supply structure.\u201d<\/p>\n Chinese President Xi Jinping stands in the Great Hall of the People in Beijing, China | Lintao Zhang via Getty Images<\/p>\n China watchers said Xi was alluding to the governments relatively new economic plan, dubbed \u201cMade in China 2025,\u201d which leaders had unveiled in 2015. The detailed vision shifted the focus on domestic research investments to the need to pump money into \u2014 and better understand \u2014 foreign markets.<\/p>\n \u201cWe will,\u201d the document<\/a> proclaimed, \u201cguide enterprises to integrate into local culture.\u201d<\/p>\n \u201cWe will,\u201d the document continued, \u201csupport enterprises to perform mergers, equity investment and venture capital investment overseas.\u201d<\/p>\n At the top of the investment wish list were high-tech industries like artificial intelligence, robotics and space travel.<\/p>\n A concerted push by China to reshape the market in its favor\u2026threatens the competitiveness of U.S. industry and the national and global benefits it brings\u201d \u2014 2017 report from the Presidents Council of Advisors on Science and Technology<\/em><\/p>\n<\/blockquote>\n For the increasingly powerful Chinese leader, it was the culmination of years of efforts to guide how China spends its blossoming wealth. In addition to luring foreign companies to China, Xi wanted the country \u2014 which is sitting on<\/a> several trillion dollars in foreign exchange reserves \u2014 to start investing abroad.<\/p>\n The plan had \u201cmuch more money behind it\u201d and \u201cmuch more coordination\u201d between Beijing and Chinese industrialists than previous economic strategies, according to Scott Kennedy, an expert on Chinese economic policy at the Center for Strategic and International Studies, a Washington think tank that specializes in defense matters.<\/p>\n \u201cAnd a big component of that is acquiring technology abroad,\u201d he said.<\/p>\n From 2015 to 2017, Chinese venture capitalists pumped money into hot companies like Uber<\/a> and Airbnb<\/a>, but also dozens of burgeoning firms with little or no name recognition. The country didnt just want \u201ctrophy assets,\u201d Kennedy explained. Chinas leaders wanted to \u201cfill in some of the gaps they have\u201d in Chinas tech economy.<\/p>\n While the Asian power has piled up profits from its large manufacturing plants that churn out low-cost products, the Beijing government realized it would face declining productivity unless its economy, from agriculture to manufacturing, adopted high-tech methods. Essentially, China wanted to automate entire industries \u2014 including car manufacturing, food production and electronics \u2014 and bring the whole process in-house.<\/p>\n So Beijings leaders encouraged the countrys cash-rich investors to search for \u201cemerging companies that have technologies that may be extremely important \u2026 but arent proven,\u201d Kennedy said. The initiative has spawned investments in American startups that work on robotics, energy equipment and next-generation IT. Of particular concern to U.S. national security officials is the semiconductor industry, which makes the microchips that provide the \u201cguts\u201d of many advance technologies that China is seeking to leverage.<\/p>\n \u201cA concerted push by China to reshape the market in its favor, using industrial policies backed by over one hundred billion dollars in government-directed funds, threatens the competitiveness of U.S. industry and the national and global benefits it brings,\u201d declared a January 2017 report<\/a> from the Presidents Council of Advisors on Science and Technology, warning of the urgent threat to U.S. superiority in semiconductor technology.<\/p>\n Notably, many of Chinas investments didnt register on the CFIUS radar. They involved the early-seed funding of tech firms in Silicon Valley and low-profile purchases such as the one in Delaware bankruptcy court. They included joint ventures with microchip manufacturers, and the research and development centers created with international partners.<\/p>\n \u201cThey have diversified to look for smaller targets,\u201d Kennedy said. \u201cThose things typically do not generate a CFIUS reaction. That is part of it.\u201d<\/p>\n CFIUS was set up by Congress in 1975 amid growing concerns about oil-rich countries in the Middle East buying up American companies, from energy firms to arms-makers. Chaired by the Treasury Department, the committee brought together representatives from all the major Cabinet agencies to assess the financial, technological and national security threats posed by such investments. For its first decade, however, CFIUS existed mostly as an obscure research body. From 1975 to 1980, the committee met only 10 times, according to congressional reports.<\/p>\n Japans economic ascendance in the 1980s changed that. The Defense Department asked CFIUS to step in and investigate potential Japanese purchases of a U.S. steel producer and a company that made ball bearings for the military. In 1988, Congress gave the committee the authority to recommend that the president nix a deal altogether. Still, the committee remained mostly an ad hoc operation into the 1990s.<\/p>\n \u201cBureaucratically it was not a very smooth, functioning operation,\u201d recalled Steve Grundman, who worked as part of the committee during the Clinton administration. \u201cWe had to pick up some intelligence here, some technology assessment there, some industrial analysis hither.\u201d<\/p>\n After the Sept. 11, 2001, terrorist attacks, Congress renewed its interest in CFIUS, passing legislation that instructed the committee to consider a deals effect on \u201chomeland security\u201d and \u201ccritical industries,\u201d a notable change, according to Rosenzweig, the DHS official who worked with CFIUS during the George W. Bush administration. The directive gave the committee a mandate to keep an eye on a wider array of industries, such as hospitals and banks, that DHS considered \u201ccritical\u201d to keeping American society operating.<\/p>\n CFIUS investigations into foreign acquisitions nearly tripled from 2009 to 2015<\/p>\n<\/blockquote>\n Rosenzweig called it a \u201csingular shift.\u201d Over time, he said, the committee went from reviewing acquisitions of steel companies \u2014 involving just two parties and a tangible product \u2014 to investigating technically complex purchases of microchip companies and other software or data-rich firms.<\/p>\n \u201cWhen I first came to CFIUS, the filings from the other side would be a few-page letter about why this was a good deal,\u201d Rosenzweig said. \u201cNow its a stack of books thats up to my knee.\u201d<\/p>\n The committees staffing and resources have not kept pace with the growing workload, multiple people who work with CFIUS told POLITICO. While the Treasury Department has been hiring staffers and contractors to help handle the record workload, the committees overall resources are subject to the whims of the individual agencies involved in the process, said Stephen Heifetz, who oversaw the CFIUS work at DHS during the second Bush administration.<\/p>\n There is no single budget or staffing figure for CFIUS. Instead, each agency decides the level of personnel and funding its willing to commit to the committee. The Treasury Department and DHS have two of the larger CFIUS teams, Heifetz said. During his tenure, Heifetzs DHS squad included roughly 10 people, split equally between government workers and outside contractors.<\/p>\n \u201cEach agency decides more or less on their own how theyre going to staff it,\u201d Heifetz said.<\/p>\n At Treasury, there are now between 20 and 30 people working for CFIUS, according to a senior department official. But even with the expanded team, the committee is stretched precariously thin. The official described 80-hour workweeks, regular weekend work and no ability to take time off.<\/p>\n \u201cIts enough to handle the current mandate, but not comfortably,\u201d the official said.<\/p>\n Amid this uncertainty over resources, CFIUS investigations into foreign acquisitions nearly tripled<\/a> from 2009 to 2015. The most common foreign investor that hits the CFIUS radar is now China. Nearly 20 percent of the committees reviews from 2013 to 2015, the most recent data available, involved<\/a> the Asian power, easily ahead of second-place Canada at just under 13 percent.<\/p>\n People inspect products inside an Apple store in Beijing, China | Nicholas Asfouri\/AFP via Getty Images<\/p>\n Since 2015, the Treasury official said, those trends have only continued: Chinese deals now represent a large plurality of the committees work.<\/p>\n The attention appears to be well-founded. In recent years, China has been repeatedly accused of industrial espionage \u2014 using indirect means to obtain American software and military secrets, everything from the code that powers<\/a> wind turbines to the designs that produce<\/a> the Pentagons modern F-35 fighter jets. And several Chinese businessmen have pleaded<\/a> guilty to participating in complex conspiracies to get their hands on sensitive technical data from U.S. firms and shuttle it back to Beijing. Again and again, high-tech products and military equipment have popped up in China that bear a too-striking resemblance to their American counterparts.<\/p>\n Spurred by these incidents, CFIUS has successfully advised the president to nix Chinese deals at a record clip. In December 2016, former President Barack Obama stopped a Chinese investment fund from acquiring the U.S. subsidiary of a German semiconductor manufacturer \u2014 only the third time a president had taken such a step at that point. In September 2017, Trump halted a China-backed investor from buying the American semiconductor-maker Lattice, citing national security concerns.<\/p>\n CFIUS is \u201coutdated\u201d and \u201cneeds to be updated to deal with todays situation\u201d \u2014 Jim Mattis, U.S. Defense Secretary<\/em><\/p>\n<\/blockquote>\n Three months later, a Chinese companys plan to acquire the American money transfer company MoneyGram fell apart<\/a> when the two sides realized they would likely not get CFIUS approval because of concerns that the personal data of millions of Americans \u2014 including military personnel \u2014 could fall into the hands of the Chinese military.<\/p>\n Weeks after that, the committee essentially jettisoned a Chinese state-backed groups attempt to buy Xcerra, a Massachusetts-based tech company that makes equipment to test computer chips and circuit boards. Then, in March, Trump blocked the purchase of the chipmaker Qualcomm by Singapore-based Broadcom Ltd. CFIUS said such a move could weaken Qualcomm, and thereby the United States, as it vies with foreign rivals such as Chinas Huawei Technologies to develop the next generation of wireless technology known as 5G.<\/p>\n To national security leaders, though, CFIUS is still only scratching the surface of Chinas ambitions to acquire U.S. technology, noting that traditional sale-and-purchase agreements to obtain a U.S. company arent the only ways to gain access to cutting-edge technology.<\/p>\n \u201cYou can buy a [partial] interest in a company and gain access to the same type of technology,\u201d Attorney General Jeff Sessions told Congress in October, adding that Justice Department investigators \u201care really worried about our loss of technology\u201d in instances where Chinese investors buy small stakes in American tech companies.<\/p>\n The U.S. military has raised similar concerns. Defense Secretary Jim Mattis warned last summer that America is failing to restrict foreign investments in certain types of critical industries, testifying during another hearing<\/a> that CFIUS is \u201coutdated\u201d and \u201cneeds to be updated to deal with todays situation.\u201d<\/p>\n The case that occurred last summer in an obscure courtroom in Delaware seemed innocuous enough: One relatively small tech firm buying out a bankrupt competitor, a transaction that elicited about as much drama as mailing a letter.<\/p>\n The bankrupt semiconductor maker ATop Tech had only 86 employees when it was declared insolvent. But it had a more than a $1 billion market share of the electronic-design automation and integrated circuits markets, the company told the bankruptcy court, giving it potential value to any player seeking to enter the highly specialized semiconductor industry.<\/p>\n Avatar Integrated Systems, the company seeking to purchase ATop, was apparently such a player. But it was not well known to others in the semiconductor industry, and its precise ownership was a bit of a mystery. The sole director listed on its incorporation papers was a Hong Kong-based businessman named Jingyuan Han, and it issued shares to King Mark International Limited, a Hong Kong company in which Han was an investor. Avatar was set up in March 2017, according to the company.<\/p>\n The transaction went ahead despite concerns raised to the court by other players in the semiconductor industry, as well as those of a former senior Pentagon official who specifically suggested the Chinese government may be backing Avatar.<\/p>\n The former Pentagon official, Joseph Benkert, was enlisted by another American semiconductor company, Synopsys, to help recoup money it was owed by ATop. He warned the court that the deal might have national security risks.<\/p>\n \u201cCFIUS has identified businesses engaged in design and production of semiconductors as presenting possible national security vulnerabilities because they may be useful in defending, or seeking to impair, U.S. national security, as semiconductor design or production may have both commercial or military applications,\u201d Benkert, the former assistant secretary of defense for global affairs under the second Bush administration, wrote to the court.<\/p>\n Benkert argued that the question of Avatars ownership needed more review given that the company appeared to be \u201cunder the control of Han, a Chinese national.\u201d<\/p>\n \u201cIn my opinion,\u201d Benkert wrote, \u201cthe proposed transaction is likely to receive thorough CFIUS scrutiny and there is a material risk that it will not receive CFIUS approval.\u201d<\/p>\n But despite those concerns, the deal to buy ATop Tech was not given a formal review by CFIUS, according to a senior administration official with direct knowledge of the process. A Treasury Department official, speaking on behalf of CFIUS, declined to comment on the merger.<\/p>\n An Avatar official, reached at the company office in Santa Clara, Calif., did not respond to questions or a request for an interview with Han. The company did not respond to multiple requests to discuss its relationship \u2014 if any \u2014 with the Chinese government or the details of its business.<\/p>\n Han, who has been described in media reports as one of Chinas wealthiest men, has spent his career almost entirely in the iron and steel industries. Avatars scant history seemed to suggest that it was created for the sole purpose of acquiring an established American semiconductor firm like ATop Tech, according to several former national security officials who still work on CFIUS cases.<\/p>\n Attempts to reach Han through China Oriental Group, the iron and steel company that he runs, were also unsuccessful.<\/p>\n There is no process for surfacing information out of the bankruptcy courts\u201d \u2014 a former CFIUS official<\/em><\/p>\n<\/blockquote>\n Officials familiar with the CFIUS process say that bankruptcy deals such as the Atop-Avatar case sometimes fall off their radar because of difficulty in discerning whether Chinese investors are working with the government. In other bankruptcy cases, Chinese investment in a potential buyer may not be visible in official filings, especially when a web of holding companies is involved. Thus, say current and former officials working with CFIUS, a significant amount of detective work is necessary to discern both the identity and the intentions of the investors.<\/p>\n Traditionally, courts have defined control of a company as \u201cthe ability to direct management to make certain decisions.\u201d But a former Treasury Department official said CFIUS needs to focus on \u201cbeneficial ownership,\u201d defined as having the ability to obtain technology from the firm, rather than overall decision-making power.<\/p>\n \u201cIt is very hard to find beneficial ownership,\u201d said the official. \u201cOur concern is the capacity of the system to deal with these.\u201d<\/p>\n The bills pending in Congress to strengthen the CFIUS review process include provisions designed to make scrutiny of bankruptcy cases easier. The bills would require CFIUS to \u201cprescribe regulations to clarify that the term covered transaction includes any transaction \u2026 that arises pursuant to a bankruptcy proceeding or other form of default on debt.\u201d<\/p>\n A sharper focus on bankruptcy cases, particularly in making sure CFIUS scrutinizes investors to ties to foreign governments, is desperately needed, said a former Pentagon official who is still involved in CFIUS cases. \u201cHow do they find out about it now? They are reading The Wall Street Journal late at night,\u201d the official said. \u201cIt is not a very systematic process.\u201d<\/p>\n The former official also recalled that in the past, the Pentagon has hired an outside contractor to scour around for unreported transactions that might raise some national security flags, such as in the semiconductor or aerospace sectors. Such checks need to be performed in a more systematic way.<\/p>\n \u201cThere is no process for surfacing information out of the bankruptcy courts,\u201d the official said.<\/p>\n In Silicon Valley, Chinese investment isnt typically viewed as a threat, but rather more of a blessing.<\/p>\n Chris Nicholson, co-founder of Skymind, an artificial intelligence company that makes the type of cutting-edge software that both the United States and China covet, recalls the many long months he spent in 2014 trudging up and down Sand Hill Road, the heart of Silicon Valleys leading venture capital firms, and all the doors that slammed shut.<\/p>\n \u201cThat was a long, dry year for us,\u201d he told POLITICO.<\/p>\n Every investment comes with a risk of some loss of intellectual property or foreign influence and control\u201d \u2014 Bryan Ware, CEO of Haystax Technology<\/em><\/p>\n<\/blockquote>\n Nicholson hadnt sought Chinese money. But then Tencent, Chinas internet and telecommunications giant and now one of the worlds largest companies<\/a>, approached the firm, offering $200,000 in seed funding. The Chinese monetary infusion buoyed Skymind, which soon landed a coveted spot in Y Combinator, the powerful startup accelerator. American investors, who had only months earlier eschewed the firms overtures, quickly changed their tune. Chinese investment soon beget American investment.<\/p>\n \u201cIt was that crucial piece of Chinese capital that allowed us to survive,\u201d Nicholson said. \u201cThats all it took. Now were a company with 35 employees.\u201d<\/p>\n Reflecting a common feeling among his cohorts in Silicon Valley startups, Nicholson insisted that working with Chinese investors does not mean granting Beijing officials access to the coding process. \u201cMy American co-founder and I are in control,\u201d Nicholson said, noting that Skymind has given up none of the rights to its intellectual property and has made its code \u201copen sourced,\u201d which means the code is freely available for cybersecurity experts to inspect, audit and offer suggestions.<\/p>\n But Bryan Ware, CEO of Haystax Technology, which works with law enforcement, defense and intelligence clients on securing their technologies, cast some doubt on the idea that the owners of tech startups would naturally refuse to share details of their technology with their investors: \u201cIf youve got a Chinese investor and thats the lifeblood thats going to allow you to get your product out the door, or allow you to hire your next developer, telling them, No, you cant do that, or, No you shouldnt do that, while you have no other alternatives for financing \u2014 thats just the nature of the dilemma.\u201d<\/p>\n \u201cEvery investment comes with a risk of some loss of intellectual property or foreign influence and control,\u201d Ware said.<\/p>\n And too many Silicon Valley deals exist in a \u201cnetherworld\u201d between passive investment and absolute takeover, \u201cwhere theres access to information, technical information, [and] there is the ability to influence and potentially coerce management,\u201d according to the senior Treasury Department official.<\/p>\n Silicon Valleys capital city of San Jose, California | Helene Labriet-Gross\/AFP via Getty Images<\/p>\n One major concern among specialists like Ware is that Beijing officials could use early Chinese investments in next-generation technology to map the software the federal government and even the Defense Department may one day use \u2014 and perhaps even corrupt it in ways that would give China a window into sensitive U.S. information.<\/p>\n A POLITICO review of 185 tech startups with Chinese investors found just over 5 percent had received government contracts, loans or grants ranging from a few thousand dollars to several million dollars. Often, the contracts simply involved research \u2014 renewable energy for the Energy Department, electronics and communications equipment for the Pentagon, space technology for NASA. Others ordered lab equipment for the Commerce Department, or machine tools for the military.<\/p>\n \u201cTheres a tremendous amount of intelligence value there,\u201d Ware said. \u201cAll governments desire to know what other governments are doing. And knowing the technologies and how they work I think is a big part of that.\u201d<\/p>\n While theres no indication that the firms had U.S. government contracts at the time that Chinese investors became involved, that may be part of Chinas strategy. Derek Scissors, who manages the American Enterprise Institutes China Global Investment Tracker, an exhaustive database of Chinas major global investments, said that as welcome as the surge of Chinese-funded deals may be in Silicon Valley, the engine behind them is the Chinese government. Chinas Silicon Valley investment strategy \u201cwas shaped by the state and that shaping has gotten tighter,\u201d he said.<\/p>\n Still, many Chinese investments in the United States are not directly backed by the Beijing government, but it can be hard to distinguish.<\/p>\n Some prominent Chinese VC firms in Silicon Valley have clear links to the government. Westlake Ventures, for example, received funding from the government in the coastal Chinese city of Hangzhou, according to media reports<\/a> and a Pentagon research paper<\/a>. And Westlake has put money into other VC funds, such as the WI Harper Group, which has a stake in a wide slate of American tech companies, from a dating app to a three-dimensional imaging company to a maker of robot cooks. Westlake did not respond to a request for comment.<\/p>\n But its not always easy to trace the money back to a single source, let alone determine what connection that source has to Beijings Communist leadership. Haiyin Capital, a Beijing-based VC firm, is partially backed by a state-run Chinese company, according to a company release<\/a>. Also complex is ZGC Capital Corporation \u2014 located in Silicon Valley and focused on providing startups with basic business help \u2014 is a subsidiary of a state-owned enterprise funded by the Beijing government, according to the organizations websites. Attempts to reach each organization were unsuccessful.<\/p>\n Security and economics experts say they are unsure how much financial or national security harm these Chinese investments are actually causing the United States \u2014 if any \u2014 simply because it may not be clear for years exactly how important the technology may be.<\/p>\n In the meantime, entrepreneurs in Silicon Valley are blunt: America actually needs Chinese money to maintain its global tech advantage.<\/p>\n \u201cHeres my warning shot,\u201d Nicholson said. \u201cIf we make it difficult for foreign talent and foreign capital to find each other by over-regulating early-stage startup investing \u2026 we will lose our supremacy as the top tech economy in the world.\u201d<\/p>\n In Washington, Silicon Valleys warning has been heard loudly enough to delay the passage of a bill to strengthen the CFIUS process, despite the support of such bipartisan figures as Cornyn, the second-ranking Senate Republican, and Californias own Democratic Sen. Dianne Feinstein<\/a>, the ranking member of the Senate Judiciary Committee.<\/p>\n Last year, after a cascade of warnings from the Defense Department, Justice Department and other powerful sources, both the House and Senate seemed ready to take action to strengthen oversight of foreign investment in technology companies.<\/p>\n Any Chinese-related company that is part of our supply chain is a concern to me\u201d \u2014 Robert Pittenger, U.S. Representative<\/em><\/p>\n<\/blockquote>\n The bipartisan proposal would direct CFIUS to consider whether pending investments would erode Americas technological edge, enable a foreign government to utilize digital spying powers that might be used against the United States, or give sensitive data \u2014 even indirectly \u2014 to a foreign government. Similarly, it would expand the definition of \u201ccritical industries\u201d \u2014 a reference to sectors like banking, defense or energy \u2014 to include \u201ccritical technologies,\u201d a significant expansion of the committees current mandate.<\/p>\n Under the bill, S. 2098 (115)<\/a>, CFIUS would have to create a system to monitor transactions that arent voluntarily brought to the committees attention.<\/p>\n The measure would also centralize some of the committees functions and allow the committee to charge filing fees up to 1 percent of the total value of the transaction up to $300,000, and let Treasury offer a single CFIUS budget request rather than relying on contributions from other departments.<\/p>\n The Trump administration offered a full-throated endorsement of the bill in January, saying<\/a> it \u201cwould strengthen our ability to protect national security and enhance confidence in our longstanding open investment policy.\u201d<\/p>\n And while the bill doesnt explicitly cite China, the provisions are clearly aimed at limiting its access to the most sensitive areas.<\/p>\n \u201cAny Chinese-related company that is part of our supply chain is a concern to me,\u201d Rep. Robert Pittenger<\/a> (R-N.C.), a lead House sponsor of the bill, H.R. 5841 (115)<\/a>, told POLITICO.<\/p>\n Pittenger insisted that Congress inaction is allowing China to brazenly pilfer the technology that drives Americas military might, and sell that technology to adversaries like Iran and North Korea. He noted that a Treasury official told him getting the bill signed is the departments No. 1 legislative priority for 2018.<\/p>\n \u201cWe cant turn a blind eye to this,\u201d Pittenger said.<\/p>\n But many technology entrepreneurs believe the bill would simply drive cutting-edge research overseas. In 2016, foreign investors injected<\/a>$373 billion into the United States, a figure that has been mostly increasing since the early 2000s, according to government data. Lengthening the CFIUS review time \u2014 currently 30 days, but set to extend to 45 days under the new bill \u2014 could damage the \u201cbrittle process\u201d of early-stage fundraising, said Nicholson, who encouraged lawmakers to focus on expanding CFIUS powers in other areas, such as bankruptcy courts.<\/p>\n \u201cI worry that theyre driving a bulldozer towards a rose garden,\u201d said Nicholson, echoing his claim that training the CFIUS lens on Silicon Valley could scare off the very financing that keeps America growing.<\/p>\n IBMs vice president for regulatory affairs, Christopher Padilla, agreed, warning at a January hearing that the bill \u201ccould constitute the most economically harmful imposition of unilateral trade restrictions by the United States in many decades.\u201d<\/p>\n He raised particular concerns about expanding CFIUS authority to cover foreign investments in \u201ccritical technologies,\u201d a phrase tech leaders say is worryingly opaque and that could force companies peddling sensitive technology to have every single sale reviewed.<\/p>\n Padilla called it a \u201cwell know it when we see it\u201d approach to regulating that \u201cwould be deeply damaging to U.S. competitiveness, and, more important, could lead to a false sense of security.\u201d<\/p>\n Some industry groups have suggested that the bill should delineate these technologies \u2014 robotics or artificial intelligence, for instance \u2014 to avoid having every deal scrutinized from top to bottom.<\/p>\n \u201cWe would be well served to define those issues from the outset,\u201d said Dean Garfield, CEO of the Information Technology Industry Council, a trade group representing industry heavyweights such as Amazon, Apple, Facebook, Google, Microsoft and Twitter. Garfield said getting the bill revised is a top-five issue for ITI in 2018.<\/p>\n He cautioned that the bill, as written, could spike the number of annual CFIUS reviews from \u201ca few hundred deals\u201d to \u201ca few thousand.\u201d<\/p>\n Proponents, however, feel that specifying specific technologies might be impossible. The software powering the country \u2014 from waterways to missile systems \u2014 is constantly changing and evolving, they say. Instead, they suggest, new CFIUS funds and a streamlined reporting process would help keep the growing stream of deal reviews moving.<\/p>\n \u201cFor the price of a single B-21 bomber, we can fund an updated CFIUS process and protect our key capabilities for several years,\u201d Cornyn said at a hearing. \u201cThat is a down payment on long-term national security.\u201d<\/p>\n Nonetheless, lawmakers have been working<\/a> to address industry complaints, making tweaks<\/a> to the legislation. And just last week, lawmakers made a breakthrough, agreeing<\/a> to slightly narrow the bills scope, raising the chances the measure will make it to the presidents desk.<\/p>\n![](\"https:\/\/www.politico.eu\/wp-content\/uploads\/2018\/05\/GettyImages-961541344-714x476.jpg\"\/)
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Made in China 2025<\/h2>\n
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An obscure research body<\/h2>\n
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A mysterious takeover<\/h2>\n
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China goes to Silicon Valley<\/h2>\n
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<\/p>\nEnter Congress<\/h2>\n
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