Companies that threaten U.S. national security or breach export laws are facing repercussions. This message is loud and clear, reinforced by recent lawsuits from the Department of Commerce’s Industrial and Security Bureau. Notably, there have been steps taken to place numerous Chinese firms on an entity list linked to human rights abuses, surveillance activities, and military advancements.
Yet, a significant loophole persists, allowing for unwanted influence. Subsidiaries play a crucial role in China’s approach to infiltrate the U.S. market, often unnoticed.
Consider the China Aviation Industry Corporation, a massive state-owned entity in Beijing’s core. Many of its subsidiaries are already noted on the Entity List. However, with the conglomerate housing hundreds of subsidiaries—many with innocuous names and some hidden within complex ownership structures—business continues with U.S. firms. This poses risks as they gain access to controlled U.S. military technologies. Why does this happen? The entity list does not automatically extend to subsidiaries.
This goes beyond mere surveillance; it represents a broader national security challenge.
China’s military fusion policy is a strategic initiative aimed at unlawfully acquiring U.S. and Western technologies. This doctrine blurs the distinctions between private sectors and the People’s Liberation Army (PLA), allowing China to evade American restrictions like entity listings. If one company hits the list while its subsidiary remains off, Beijing can find ways to sidestep the issue—by redirecting, renaming, and rebranding.
Recognizing the severity of this problem, Congress is taking notice. The House Selection Committee on Strategic Competition between the U.S. and the Chinese Communist Party has recently reached out to the Industrial and Security Bureau about this loophole.
Proposals have emerged aiming at reforming policies to address this gap. Recommendations suggest the Bureau enforce stricter export control measures, including a “50% rule” to prevent businesses with significant ownership from engaging in commerce. Such regulations could significantly bolster U.S. national security and simplify compliance.
The Industrial and Security Bureau is indeed reliable, but their tasks are intricate and often under-resourced. As China’s state-run enterprises advance in evading scrutiny, it’s crucial that U.S. export control methods adapt accordingly.
These complexities need to be confronted directly, creating a system for continuous assessment of dual-use supply chains. It’s essential to monitor changes in ownership, the presence of shell companies, and logistics networks to identify any risks.
If America aims to excel in its technological rivalry with China, the Bureau cannot afford to rely on outdated strategies against modern challenges. Now’s the time for decisive action. The Bureau has both the authority and bipartisan backing to move forward. Include subsidiaries on the list. Put a stop to the shell game.
