The top Republican on the Senate Intelligence Committee is pushing a bill that would block Small Business Administration loans or funding from going to companies that are based in China or are partially owned by Chinese citizens as part of a broader effort to clamp down on Communist Party influence.
Sen. Marco Rubio introduced on Thursday the Preventing SBA Assistance From Going to China Act, aiming to block any SBA assistance from going to Chinese citizens, with the bill saying that U.S. taxpayer assistance through SBA may not be provided to any small business that is headquartered in China or that has more than 25% of the voting stock of the company owned by affiliates that are citizens of China. Current law allows SBA to help qualified small businesses operating within the United States, so many Chinese-owned companies with a U.S. presence are technically eligible to receive federal benefits from SBA, potentially including guaranteed loans, disaster loans, surety bonds, and research or development grants.
“American businesses are no stranger to the wide range of strategies Chinese firms use to starve out their competition,” Rubio said in a statement to the Washington Examiner. “Exploiting taxpayer-subsidized SBA programs designed to boost our small businesses is among the most egregious. This legislation would ensure that U.S. tax dollars aren’t giving Chinese firms an unfair advantage over American small businesses.”
It is believed Chinese-affiliated firms receive SBA assistance, but the full extent of the problem is yet unclear, in part because such assistance is not currently barred by federal law. An analysis last August by the Horizon Advisory consulting firm, for instance, found that more than 125 companies either owned by or invested in by Chinese entities had received SBA and the Treasury Department emergency loans under the Paycheck Protection Program. Those U.S. taxpayer-funded loans totaled between $192 million and up to $419 at the time, and that number has undoubtedly grown.
Republican lawmakers, and some Democrats too, have expressed concern about federal funding going to companies wholly or partially owned by Chinese citizens, and the issue has become starker as small business relief grew during the coronavirus pandemic and as lawmakers have pushed to strengthen U.S. manufacturing to compete against China.
Shannon Giles, a public affairs officer for the SBA, told the Washington Examiner: “PPP loan amounts are based only on employees whose principal place of residence is in the United States, because the goal of the program is to protect the paychecks of American workers. In addition, PPP loan funds that are used for payroll of non-U.S. employees must be repaid.” She added: “The SBA will undertake a review process that will look at, among other issues, the eligibility of borrowers, to determine whether they will be required to repay their loans.”
The SBA spokeswoman also pointed out that the Economic Aid Act “prohibits several additional categories of borrowers from receiving a Second Draw PPP Loan.” She noted that an SBA interim final rule listed “prohibited borrowers,” which include “certain entities organized under the laws of the People’s Republic of China or the Special Administrative Region of Hong Kong, or with other specified ties to the People’s Republic of China or the Special Administrative Region of Hong Kong.”
Rubio’s Senate co-sponsors are Republican Sens. Joni Ernst of Iowa and John Kennedy of Louisiana, while GOP Rep. Jason Smith of Missouri is introducing the House legislation.
This is the Florida senator’s second crack at passing this sort of SBA bill, previously called the Denying Chinese Investors Access to U.S. Small Business Aid, after an unsuccessful attempt in 2018.
“Chinese companies are abusing our current system to exploit American small business programs, which are taxpayer-subsidized and were created to help spur American ingenuity and boost small businesses,” Rubio said a few years back. “This bill will ensure that our tax dollars aren’t going overseas to China."
Rubio also pushed for SBA to scrutinize foreign ties, including ties to the Chinese Communist Party, when handing out grants to U.S. universities in the wake of the arrest of Harvard’s chemistry department chairman, Dr. Charles Lieber, in early 2020. Rubio sent a letter to the SBA administrator “questioning the agency’s ability to ensure awardees associated with universities do not have ties to foreign governments such as China.”
The Justice Department’s China Initiative aims to combat Chinese espionage, and the U.S. has arrested and charged a number of scientists, including Lieber. Multiple members of the Chinese military have also been charged by the Justice Department for concealing their ties to China's military and allegedly committing visa fraud while acting as students or researchers at U.S. universities.
Kennedy, with input from Rubio and others, including Democrats, helped lead the charge to pass the Holding Foreign Companies Accountable Act, signed into law by former President Donald Trump in December, prohibiting securities of a company from being listed on any U.S. securities exchanges if the company has failed to comply with the Public Company Accounting Oversight Board’s audits for three years in a row and requiring companies to disclose if they are controlled by a foreign government.
“Communist China has been the bully on the playground of America’s stock exchanges for years, and that stops today,” Kennedy said late last year.
The Securities and Exchange Commission announced this week it had adopted interim final amendments in accordance with that law.
The U.S. government has ramped up pressure against Chinese companies — especially those suspected of lawbreaking or being national security threats.
This week, the State Department criticized the Chinese government’s closed-court trials against two Canadians, Michael Spavor and Michael Kovrig, who are widely viewed as being detained as part of China’s hostage diplomacy in retaliation for Canada assisting the Justice Department with extraditing top Huawei official Meng Wanzhou.
The Justice Department unveiled a superseding indictment against Huawei in February 2020, charging the Chinese telecommunications giant with racketeering and conspiracy to steal trade secrets while detailing claims Huawei’s deceptive efforts to evade U.S., European Union, and United Nations sanctions when doing business in North Korea and Iran.
Huawei was added to the entity list in May 2019 because the company and its affiliates “engaged in activities that are contrary to U.S. national security or foreign policy interests," the Commerce Department explained in December 2020.
Last summer, the Federal Communications Commission designated Chinese telecom giants Huawei and ZTE as “national security threats." The FCC said that government subsidies from the FCC’s $8.3 billion annual Universal Service Fund “may no longer be used to purchase, obtain, maintain, improve, modify, or otherwise support any equipment or services produced or provided by” Huawei or ZTE.