Pentagon delays report on Chinese companies with military ties

The Pentagon has failed to give Congress a legally required report on Chinese companies with military ties, as US President Joe Biden nears a decision on whether Americans can invest in such groups.

Congress required the US Department of Defense in January to produce a report by April 15. But the Pentagon told lawmakers it has missed the deadline, according to two people familiar with the report.

The delay comes as the Biden administration decides whether to keep an executive order signed by Donald Trump, the former president, that banned Americans from investing in Chinese companies named in a previous Pentagon blacklist.

The US Treasury in January extended the deadline for the ban to take effect until May 27. The move was designed to give the administration time to evaluate the executive order as part of an extensive review of China-related actions taken by Trump.

Biden has taken a much more hawkish stance towards China than many foreign policy experts had expected.

A Pentagon spokesperson did not explain the reason for the delay but said the defence department would submit the report before October.

The Financial Times reported last year that the Pentagon had responded to pressure from Trump to compile an initial blacklist, more than two decades after it was first mandated by Congress. The former president used the list as the basis for his order to ban direct investments, or investments through funds, in the companies.

As well as telling the Pentagon to update the report every year, Congress expanded the criteria to target companies that help the People’s Liberation Army through “civil-military fusion”, a programme that requires them to share technology with China’s armed forces. That has the potential to greatly expand the scope of any investment ban.

Some US lawmakers have expressed concern about the delay. Tom Cotton, an influential Republican Arkansas senator, said it was “imperative that the Department of Defense remain focused on documenting and publicising Chinese military companies operating in the US”. He added that the administration needed to “defeat the Communist party’s attempts to use our judicial system against us”.

Cotton made his comments after the Pentagon agreed to remove Xiaomi, the Chinese smartphone maker, from the blacklist after a judge said the rationale was flawed.

The White House said it was “compelled” to remove the company after the courts said the Trump administration had failed to create a sufficient legal basis for its decision. But Emily Horne, National Security Council spokesperson, said Biden was “deeply concerned about potential US investments in companies linked to the Chinese military and is fully committed to keeping up pressure on such companies”.

John Smith, a partner at law firm Morrison & Foerster and a former US Treasury official, said the administration was hamstrung. “I am sure the Biden team would love to chuck the whole thing,” he said, referring to the complicated legal situation that Trump had left Biden. “They likely cannot because they can’t be seen as being soft on China, nor do they want to be soft on China”.

Smith said Biden needed to work out how to implement the list in a way that would not result in more losses in court.

Eric Sayers, an Asia expert at the American Enterprise Institute think-tank, said while lawmakers were unhappy with the delay to the order being implemented, they should recognise that Biden was indicating he would maintain a tough stance.

“The administration has signalled it doesn’t want to scrap the effort, but improve it through a more rigorous co-ordination process,” he said. “Whether Congress can be patient and how effective the Biden team can reconstruct the approach will be key to watch this summer.”

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