The World’s Best Photocopy Machine - A Policy Proposal to Counter China’s Strategy to Acquire Sensitive American Technology
Editor's Note: The Gerald R. Ford Presidential Foundation takes no position on matters of policy. We aspire to offer to readers thoughtful pieces on policy questions and invite contrary views. The opinions expressed in this essay are the author’s alone.
Bottom Line Up Front
China has engaged in a systematic effort to acquire US technology through covert investments in US companies. In response, Congress must amend the Foreign Investment Risk Review Modernization Act (FIRRMA) to maintain America’s competitive edge. Congress must establish a mandatory filing requirement and “presumption of unresolvability” for any investment by Chinese-linked entities into US startups involved in Artificial Intelligence (AI) and Quantum Information Science (QIS) that grants access to sensitive technical information.
The US-China Strategic Tech Competition Lies in Emerging Technologies
The United States and China are currently engaged in a strategic competition for technological superiority, widely considered the defining geopolitical contest of the twenty-first century. The 2023 US National Security Strategy characterizes China as America’s only adversary that both can and wants to reshape the international order, leveraging its technological power to advance its authoritarian interests (Jaffer 2023). Currently, China is pursuing a highly coordinated strategy explicitly outlined in policies such as “Made in China 2025” and its “Military-Civil Fusion” doctrine to achieve dominance in emerging technologies. By specifically targeting AI and quantum technologies, China is using direct investment as a key tool to close its technology gaps with America (Gallagher & Krishnamoorthi 2023, 20).
China is currently America’s primary economic and national security challenge, increasingly willing to take extreme steps to achieve its goals. Concerning emerging technologies, the primary battlefield for China’s acquisition strategy is America’s dynamic but vulnerable startup ecosystem (Kania 2017). China uses state-sponsored capital to make targeted, non-controlling minority-stake investments in US tech companies, a strategy that circumvents traditional security reviews conducted by the Committee on Foreign Investment in the United States (CFIUS). CFIUS is an interagency body within the Treasury Department that reviews financial transactions in which a foreign entity or government would control an American firm (Severin 2021). Chinese investments in American startups give it access to “the crown jewels of innovation”—proprietary code, sensitive research data, and key technical talent within the same companies that are pioneering the frontiers of emerging technologies like AI and quantum (Zimmerman 2019, 1287).
The US-China technological competition is a high-stakes race. The federal government has invested over $1 billion in quantum R&D alone via the National Quantum Initiative, and American advances in quantum have major security implications, from breaking modern encryption to transforming military intelligence and targeting (Prabhakar et al., 2024). A real collision is occurring between China’s deliberate strategy to acquire technology and the open, capital-seeking nature of America’s most vital technology sectors.
Current US Foreign Investment Review Processes Give China a Loophole
A fundamental misalignment exists between the way the US government, through CFIUS, reviews foreign investment proposals and China’s investment strategy. Historically, CFIUS was designed to scrutinize business deals that could result in foreign control of an American company. However, China’s technology acquisition strategy for AI and quantum startups rarely results in outright acquisitions (Kania 2017). Instead, it relies on non-controlling, minority-stake investments that fall below CFIUS’s review threshold, allowing it to circumvent official scrutiny. The scale of China’s officially-reported activity is significant. From 2022 to 2024, the highest number of notices filed with CFIUS came from Chinese investors, totaling 95 transactions (CFIUS Annual Report 2024, 36).
For example, Chinese tech giant Tencent has invested in over 40 US tech startups and venture funds like Hone Capital, one of Silicon Valley’s most prolific seed investors (Zimmerman 2019, 1292; Rusolillo & Ma 2017). Even small investments provide access to a company’s management, networks, and talent, which, according to the Treasury Department, is an “intangible benefit” coming with capital flows. This allows Chinese state actors to gain access to intellectual property and knowledge transfer (Shepardson et al., 2024). In 2018, FIRRMA expanded CFIUS jurisdiction to cover some of these partial investments, including those that give access to sensitive technical information. However, FIRRMA is vague and unevenly enforced, allowing Chinese state-backed investors to secure board seats, advisory roles, and network access—effectively achieving their strategic goals while evading the control threshold that would warrant a CFIUS review (Severin 2021, 63).
Two major design flaws worsen this vulnerability. Firstly, a “country-blind” policy that requires CFIUS to treat investments from every country equally, whether from an adversary like China or a close ally like France or Israel (Gallagher & Krishnamoorthi 2023, 30). This essentially forces CFIUS to spend time and resources vetting investments from allied countries, while overlooking threats posed by Chinese investors, who were involved in 16 covered transactions to acquire US critical technology companies (CFIUS Report 2024, 54). Second, CFIUS’s lack of technical expertise prevents it from understanding the type of investments it reviews. CFIUS is staffed mainly by policy generalists rather than PhD experts in AI or quantum computing. This expertise gap causes average review delays of 156 to 203 days. These delays make it harder for reviewers to distinguish harmless investments from those that could leak major technological secrets to adversaries, thereby making the investment climate more unpredictable (Li 2025).
Finally, CFIUS operates reactively, not proactively, meaning companies can decide whether to report an investment. This encourages adversarial investors to avoid reporting and hope they go undetected, forcing CFIUS to play a difficult cat-and-mouse game to find these “non-notified” transactions after they have already occurred. When CFIUS eventually detects problematic investments, the damage may have already happened, and the technology might already have been transferred. The way CFIUS currently operates rewards secrecy and places the burden on it to find threats. A new approach must be adopted to force transparency regarding these specific, high-risk deals from the moment they are proposed (CFIUS Annual Report 2024, 40).
Chinese Dominance Means More Surveillance and Imperiled US National Security
If America fails to close its investment loophole via CFIUS, China will be further emboldened to illicitly acquire American technology, with severe ramifications for American national security and global economic competitiveness. China has already used this strategy to steal US technology in other industries, like drones, successfully. China successfully used its state and market power to help its companies, such as DJI. Now, Chinese companies control 80 percent of the global market for unmanned aerial vehicles, forcing the U.S. Department of the Interior to ground its own fleet over cyber espionage concerns (Severin 2021, 60). Without reforms to CFIUS, this future awaits America’s strategic AI and quantum industries. Chinese state-backed firms, empowered by easy access to American innovation through CFIUS investment loopholes, will outcompete and displace American companies, leading China’s technology to eclipse America’s. In the long term, inaction means the global tech industry will depend on Chinese-controlled supply chains for these emerging technologies, which is the country’s primary aspiration under its “Made in China 2025” plan (Gallagher & Krishnamoorthi 2023, 20).
American inaction presents dire national security consequences. If unchecked, Chinese theft of US technology will directly translate into advanced military capabilities meant to threaten and intimidate America, its allies, and the US-led rules-based international order. Strategic documents suggest China intends to integrate quantum-enhanced AI into its nuclear command and targeting systems, which would create more instability and danger globally. If China becomes the first country to successfully develop quantum computers, albeit using proprietary technology from US startups, it could launch cyberattacks that bypass the encryption safeguarding America's most critical, sensitive military, diplomatic, and intelligence communications assets. Furthermore, advances in quantum sensors could render previously undetectable US submarines and stealth aircraft detectable. This would effectively establish transparent skies and oceans, erasing a key US military advantage over China (Giordano 2022).
In the long run, if America loses the AI and quantum race, it will not only incur military and economic losses but also effectively surrender its global leadership to China. This is because the country leading in these technologies will establish the global standards for their use. If Beijing dominates AI, it would export its authoritarian surveillance model through initiatives like the “Digital Silk Road,” which aims to create a world order dependent on autocratic power (Jaffer 2023). America cannot allow its innovations to be used by China, “the world’s best photocopy machine,” as this would be a policy failure that diminishes American influence, prosperity, and security.
Policy Options
Potential Option 1: Improve Existing Resources & Hire More Staff
The first course of action requires no changes to FIRRMA and instead would increase congressional funding for CFIUS member agencies, including the Department of the Treasury and the Department of Defense. The additional resources could increase hiring, acquire better data analytics tools and improve the committee’s ability to be proactive in identifying, investigating, and acting upon “non-notified transactions.” These are the investments that parties do not voluntarily report to CFIUS (CFIUS Annual Report 2024, 40).
Advantages: The primary advantage of this approach is its political feasibility and minimal disruption. This approach avoids contentious legislative processes, reinforcing existing hiring efforts since FIRRMA passed in 2018. Additionally, this approach would not impose new compliance burdens on US startups and venture capital investors, who had previously raised concerns about the red tape around mandatory filing requirements (Severin 2021, 66).
Disadvantages: This approach is structurally insufficient and fundamentally reactive. Appropriating more money does not fix the primary design flaws of CFIUS’ review process. Additionally, this approach would fail to address the committee’s “country-agnostic” mandate, which requires it to treat allies and adversaries impartially —a policy deemed insufficient to combat China’s Military-Civil fusion (Council on Foreign Relations 2018). Additionally, this approach does not address the lack of technical expertise in emerging technologies at CFIUS, leaving the US government in a continuous game of catch-up. This policy represents the problematic status quo, where CFIUS continues to try to untangle complex, covert transactions after critical technology may already have been transferred to China (Gallagher & Krishnamoorthi 2023, 30).
Potential Option 2: Establish a New Body for Targeted Enforcement
Another course of action would be to create a separate interagency body to review and, if warranted, prohibit outbound US investments into sensitive technology sectors, notably AI & quantum, in countries of concern. This body would be tasked with preventing outflows of American “smart money”—capital accompanied by management and technical expertise—from fueling the indigenous development of Chinese AI and quantum capabilities (Kilcrease 2024, 5).
Advantages: The new interagency body would directly mitigate the problem of US capital contributing to China’s military modernization (Gallagher & Krishnamoorthi 2023, 26). In targeting the source of capital, this body would disrupt funding outflows to China and, crucially, the intangible benefits that US venture capitalists give to budding Chinese tech firms (Shepardson et al., 2024).
Disadvantages: This approach is too broad and politically unfeasible. Members of Congress have debated the idea of an outbound investment mechanism for years to no avail, implying that significant industrial and political opposition exists to creating such a body. Additionally, creating a new bureaucratic body would be inefficient and duplicative, failing to address the problem of preventing Chinese capital inflows to American startups. This approach may slow China’s development, but it would not protect America’s innovation ecosystem from foreign exploitation.
RECOMMENDED Option: Congress Can Amend FIRRMA to Establish a Specialized Review Process for AI & Quantum
This policy would leverage technical expertise to help members of Congress amend the existing FIRRMA framework. The first component of this amendment mandates filings for any investment by Chinese state-backed entities that grants them access to sensitive, confidential technical information in American AI or quantum computing startups. Additionally, this amendment would create a “presumption of unresolvability” for Chinese investments, shifting the burden of proof to investors to demonstrate that their investments are safe and not intended for sabotage or espionage. Finally, this amendment would establish and fund a technical advisory subcommittee within CFIUS to provide in-house technical expertise that optimizes the committee’s investment oversight capabilities.
Advantages: This amendment represents an effective, targeted, and feasible policy. This policy’s effectiveness is reinforced by its proactivity in identifying high-risk transactions at the outset rather than hunting for them afterwards. The “presumption of unresolvability” would further be a powerful deterrent, placing the security burden on a potential adversarial investor, not the US government. Additionally, this policy has a targeted scope, focusing on two critical technologies and a primary country of concern, directly addressing America’s most urgent threat without alienating the most beneficial foreign investment. Moreover, the policy’s targeted scope minimizes the economic harm of an outright ban on foreign investments in these sectors. This approach is feasible, building upon FIRMMA, an existing law, which makes it easier to implement than creating a new body. Additionally, it bolsters technical expertise, thereby addressing a well-documented weakness at CFIUS (Zimmerman 2019, 1295).
Disadvantages: Since the policy is a legislative amendment, it requires an act of Congress, presenting a higher political hurdle than appropriations alone. Furthermore, introducing a new compliance requirement for a narrow segment of American startups may trigger resistance to further regulation (Chilukuri et al., 2024).
Conclusion
Currently, CFIUS has structural vulnerabilities that allow China to exploit American intellectual property in critical tech sectors such as AI and quantum computing. Many policy solutions, such as creating a new governing body or increasing the committee’s budget, are insufficient to address this investment loophole. Instead, a targeted reform is most effective. Congress must amend FIRRMA to establish a mandatory filing requirement and a “presumption of unresolvability: for these specific high-risk transactions. These legislative actions would close a critical national loophole that protects US innovation from Chinese IP theft and secure American technological leadership in the long term.
