China‘s in the spotlight on Capitol Hill with two hearings just Tuesday — one of them on primetime TV. The Biden administration and some members of Congress are focusing on economic tools the United States can use to counter China’s influence. 

Of course, trade is on that list — things like tariffs — but so is U.S. investment in China.

For years, China was a free-for-all for U.S. companies and investors. If you wanted to buy stock in a Chinese firm that makes technology used by China’s military? No problem.

There’s a long history of “types of international commerce involving these kinds of defense industry companies and their subsidiaries that would probably make the national security community’s head spin,” said Samm Sacks, a Yale Law School senior fellow studying China tech policy.

The head-spinning prompted the Trump administration to issue a list of Chinese companies that were off limits for U.S. investors. The thinking is, you don’t want U.S. money going to companies that could turn around and use it to benefit China’s military. President Joe Biden has expanded that list to 59 entities. 

The list only focuses on investments in those companies’ stock though, Sacks said. “It wouldn’t cover a joint venture or a partnership with those companies.”

But U.S. export controls could prohibit that — and that’s an approach favored by Weifeng Zhong, a senior research fellow at George Mason University.

Limits on exports to China are more effective than investment bans, he said. Just last fall, the Biden administration announced new restrictions on the sale of U.S. chip technology to China.

“I don’t think money is what’s lacking with Chinese companies,” Zhong said. “The Chinese government could easily invest a lot of money into these key sectors.”

Even so, the Biden administration is under a lot of pressure from China hawks to beef up its investment restrictions. Scott Paul, head of the Alliance for American Manufacturing, wants the White House to set up a government review board to decide if a foreign investment would be a threat to U.S. national security.

“A potential investment would need to be disclosed and a determination would be made about whether or not the investment would pose a concern,” Paul said.

It’s a tricky balance though. The administration is trying to limit investment in China on national security grounds without overdoing it and affecting the competitiveness of U.S. companies.