To Alon Raphael, the three Chinese nationals he hired in 2018 were “model employees” with a great work ethic who fit right in at Femtometrix, his Los Angeles-based company whose technology helps identify defects in advanced semiconductor chips during manufacturing. He got them visas to stay in the country, and one of them even invested in the company. “These were people that, at one point, I would have trusted my life to,” he said.
To Alon Raphael, the three Chinese nationals he hired in 2018 were “model employees” with a great work ethic who fit right in at Femtometrix, his Los Angeles-based company whose technology helps identify defects in advanced semiconductor chips during manufacturing. He got them visas to stay in the country, and one of them even invested in the company. “These were people that, at one point, I would have trusted my life to,” he said.
Then, two years ago, they stole that technology and took it back to China to establish a rival firm there that he says they are now shopping around to clients and investors. “I hired these three kids because they were good at what they do, they cared about their job, and they cared about this company,” he said. “Apparently, there were nefarious and ulterior motives that I did not suspect.”
Raphael has filed a lawsuit against them in California and this week appeared in front of the House Foreign Affairs Committee to urge policymakers to ensure companies like his are better protected from technology theft.
“I want this country’s leadership to protect its innovators,” he said in an interview the day before his congressional testimony.
Raphael’s case is emblematic of the fears underpinning much of Washington’s foreign policy of late, with a growing focus on closing down avenues for China to gain access to advanced technology. The latest push aims to create a mechanism to control outbound U.S. investment in China, with a long-awaited executive order potentially set to outline the Biden administration’s plans soon after this weekend’s G-7 meetings in Hiroshima, Japan.
The summit, where U.S. President Joe Biden will spend the weekend before cutting short his trip to deal with debt ceiling talks in Washington, could provide some international air cover. At least one ally—British Prime Minister Rishi Sunak—has hinted at a willingness to follow the U.S. lead on investment curbs, and the threats posed by China’s economic and technological “coercion” are expected to dominate the proceedings.
At the G-7, “expect more than words and communiques on economic coercion—expect action,” U.S. Ambassador to Japan Rahm Emanuel tweeted this week. The “members are developing the tools to deter and defend against China’s economic intimidation and retaliation.”
But such steps have been months in the making and illustrate the Biden administration’s difficulty in threading the China decoupling needle. Last October, the administration imposed export controls on semiconductors and flirted with a ban on Chinese apps such as TikTok. But that has given way to a more tempered approach of late. In speeches last month, Treasury Secretary Janet Yellen and National Security Advisor Jake Sullivan both stressed that U.S. moves would remain narrowly focused on technology that impacts national security and said Washington wants to “de-risk” its relationship, rather than “decouple,” with Beijing.
Experts say screening outbound investment is an incredibly complex balancing act between protecting national security and continuing to promote innovation. More practical issues in play include a lack of data on what transactions would be covered under an investment regime, the resources required to implement controls, and which technologies to target. The Biden administration has indicated that it wants a scalpel rather than a sledgehammer, with Sullivan previously advocating a “small yard, high fence” approach. But China has in the past proved itself adept at finding holes in that fence.
“I feel like outbound investment screening for Washington is the ‘Waiting for Godot’ moment,” said Reva Goujon, a director at the policy research firm Rhodium Group who focuses on U.S.-China relations. “Last year, you could see a lot of urgency” to shape the regulatory regime, she said, but the challenges of implementing it mean that “the reality check hit, and so that’s where you see from the beginning of this year just a much slower pace and methodical approach to rolling this out.”
The broader geopolitical climate is also not propitious. Washington has sought to resume dialogue with Beijing and dial down the diplomatic temperature, so far with limited results and derailed to a large extent by the infamous spy balloon fiasco.
“You can’t release an [executive order] that establishes a whole new creative control regime and then say: ‘Oh, we’re not turning up the temperature. We really want to meet with you,’” said Emily Benson, the director of the Project on Trade and Technology at the Center for Strategic and International Studies. “I think they’re kind of in between a rock and a hard place until they actually get confirmation about a meeting with Beijing.”
That’s one reason more international support for the Biden administration’s approach to China would be welcomed. The restrictions on semiconductors, Chinese tech platforms, and 5G mobile platforms in the past all benefited from getting partners on board.
“If you don’t have allied buy-in, other countries and companies will invest elsewhere and not here, and the ultimate goal will be watered down,” Benson said. “But the complicated thing is that allies don’t really have the authority to implement those types of tools.”
Despite Emanuel’s predictions, many experts are skeptical the meetings in Hiroshima will cut the Gordian knot. The biggest holdups are the Biden administration’s own divided attitude and differences between the White House and Congress.
“I don’t expect the G-7 to be much of a catalyst to move outbound investment,” said Riley Walters, the deputy director of the Hudson Institute Japan Chair. “I’m sure the Biden team may use the G-7 to feel out whether others, like Japan and the U.K., would be interested in implementing similar regulations or restrictions, but it will do little to change the debate at home.”
But, according to Benson, the bloc’s focus on technological cooperation with one another and competition with China is already a significant shift that is unlikely to be reversed anytime soon.
The G-7 and other partner countries, such as South Korea, are undergoing a major “philosophical consolidation of the way that we view strategic competition with China,” she said. “And I think we may look back on spring 2023 and see it as an inflection point.”
FP staff writer Jack Detsch contributed reporting.
