How the US is bankrolling Beijing’s ambitions

The U.S., long the world’s dominant superpower, now finds itself in the precarious position of having financed the rise of its primary adversary.

For decades, American capital has helped fuel China’s growth, supporting an economy that has rapidly modernized its industries, strengthened its military and equipped its technological capabilities. As a result, we have unwittingly empowered the Chinese Communist Party, which openly seeks to displace the U.S. as the global leader. A dramatic shift is necessary — one that prioritizes American security over financial gain.

American investors, both public and private, have poured billions into the Chinese economy, accelerating its advancement across critical sectors. Today, China is leveraging these financial resources to mount a strategic challenge to U.S. interests worldwide. Even as China openly states its intentions to replace the U.S.-led global order, American investments continue to fund its economic rise, from industrial production to high-tech research and development and military expansion.

The sheer scale of these investments has led to a perilous situation: we are financing an adversary that poses an existential threat to our national security and economic prosperity.

Even after Russia’s invasion of Ukraine and despite the increasingly confrontational relationship, American pension funds alone have invested over $68 billion in Chinese markets. This leaves public retirees’ assets vulnerable, not just to financial losses but to risks inherent in supporting a regime with opposing values and goals. Unlike the transparent, rules-based financial markets in the U.S., Chinese markets are subject to the Chinese Communist Party’s tight control and opacity.

The legal structure known as Variable Interest Entities, used to circumvent Chinese restrictions on foreign ownership, adds further risk. These entities could be outlawed at any time, leaving American investors with worthless assets. Additionally, recent crackdowns on due diligence firms in China severely limit U.S. investors’ access to accurate financial data, amplifying the risk of mismanagement and fraud.

Beyond financial risks, American investments in China carry grave security concerns. The Chinese Communist Party is adept at channeling foreign capital toward its geopolitical objectives, using it to fund technology developments that strengthen both commercial and military dominance. According to a congressional investigation, high-profile asset managers and index providers, including BlackRock and MSCI, have directed billions into Chinese firms red-flagged or blacklisted by the U.S. government due to their ties to human rights abuses or military expansion.

This dynamic threatens not only our security but also our values, as American capital unwittingly supports companies complicit in surveillance and oppression while directly resulting in U.S. job losses.

While the Biden administration’s recent executive order on outbound investments in China is a step forward, it falls short. The EO restricts U.S. capital flow only in select high-tech industries and fails to address the breadth of China’s ambitions or the multiple channels through which American investment can fuel the Chinese Communist Party’s strategic aims. It leaves critical loopholes — meaning American dollars will continue to bolster Chinese companies tied to military and intelligence services.

Meanwhile, some U.S. state officials, including financial leaders in Florida, Indiana and Kansas, have independently initiated efforts to divest from Chinese assets. But state-by-state action is piecemeal and limited, failing to match the scale of the challenge China poses. If we are serious about safeguarding U.S. national security, Congress must take immediate, decisive action.

A comprehensive legislative framework is urgently needed, one that restricts outbound U.S. investments across sectors critical to China’s strategic goals, including semiconductors, artificial intelligence, aerospace, quantum computing, biotechnology and hypersonics. A total of $40.2 billion from U.S. investors, poured into 63 blacklisted Chinese AI companies with ties to the People’s Liberation Army, is funding advanced surveillance and military capabilities. By moving beyond the limited scope of the Biden executive order, Congress can ensure that American investments do not empower companies at the forefront of China’s surveillance apparatus or its technology-driven authoritarianism.

A federal framework would protect Americans from financial loss by reducing exposure to high-risk Chinese investments and shielding retirement assets from potentially devastating sanctions or abrupt legal changes in Chinese policy. This comprehensive approach would also diminish the financial dependencies China has cultivated through economic engagement with the West. By establishing strong restrictions on investments in sectors vital to Chinese military and technological expansion, the U.S. can effectively halt the inadvertent funding of its primary geopolitical rival — if that capital can't go to China, one suspects it could be reinvested here for a domestic renewal.

The United States can no longer afford to prioritize short-term financial gain over national security. Congress has a clear mandate to impose safeguards that protect Americans’ financial assets and prevent adversarial nations from leveraging U.S. capital against our own interests. The Biden administration’s executive order, while a start, is insufficient in scope and depth. Only through robust legislative action can we secure the stability, security and prosperity that are essential to America’s future.

Our nation’s long-term security hangs in the balance, and we must act with the urgency and resolve that this moment demands.

Brian J. Cavanaugh served as a senior director on the National Security Council and is an executive director at the Department of Homeland Security. Craig Singleton, a former U.S. diplomat, serves as a senior China fellow at the Foundation for Defense of Democracies.