With Republicans In Charge In The House, China Is Now In The Crosshairs

The changes in Washington DC as a result of Republicans taking control of the House of Representatives are not merely political; they will have an enormous impact on investors and the portfolio allocation choices they make.

Exhibit A is covered in this story. The House Republicans have announced that they are setting up a new select committee to focus on ways the U.S. can confront China’s expanding economic and military power. Of course, with Republicans in control, the Chair and agenda of the committee will be set by Republican leaders even though Democrats will participate on the committee itself.

It’s important to note this is not just a fact-finding committee or one putting together an academic-style record. This committee has clearly identified China as a threat and will go about its work in a confrontational style and not in a spirit of cooperation with China.

It’s also interesting that this committee has bipartisan support. The vote in favor was 365-65 with almost all Democrats voting in favor along with Republicans.

One early target of this committee will be Chinese company ByteDance (owner of TikTok). Other topics to be covered include U.S. direct foreign investment in China, technology transfer, technology theft by China, and the role of U.S. pension funds (which are tax-exempt) in supporting investment in China. Hedge fund Bridgewater and asset manager BlackRock are likely to come under scrutiny also because of their extensive propping-up of the Chinese stock market.

Larry Fink may have to wait a while before he gets that appointment to be Secretary of the Treasury. Another important initiative will be banning exports of sophisticated semiconductors to China (including exports by other nations that use U.S. equipment or technology in the manufacturing process).

Because this is a select committee, its mandate can be broadened as needed and it’s not under any time pressure to reach specific conclusions. Investors should treat this as part of a long-term trend toward the decoupling of the U.S. from China and all that it implies in terms of reduced investment and weakness in Chinese stocks.

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