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College Foreign Cash at Risk as Senate Targets China’s Clout

Daniel Flatley, David McLaughlin and Janet Lorin
·6-min read

(Bloomberg) -- A broad attempt by Congress to stem China’s influence could put at risk research collaborations and funding that U.S. universities count on by subjecting some foreign gifts and contracts to national security reviews.

Senators are seeking increased oversight of grants and contracts to universities from overseas as part of a bipartisan package of legislation designed to increase U.S. competitiveness with China in science and technology.

The proposal would give U.S. national security officials new authority to scrutinize foreign gifts and contracts of more than $1 million to schools if the funding is related to research and development of “critical technologies” and provides access to material nonpublic technical information.

The American Council on Education said it identified about 700 contracts and gifts that were reported to the Department of Education worth $1 million or more in 2019 that could potentially be subject to national security reviews under the proposal. The trade group said the proposal could “severely hinder” international research collaborations.

Although funding from any overseas source would be subject to scrutiny, the target of the measure is clear.

“We don’t allow people who are running for public office, or who are in public office, to accept money from China,” said Senator Jim Risch of Idaho, the top Republican on the Foreign Relations Committee. “Why would we allow these institutions that engage in this important enterprise of educating Americans, why would we allow them to be influenced by money from the Chinese Communist Party?”

The proposal comes as there is a growing bipartisan sentiment in Congress to confront the challenge of China’s growing economic and diplomatic power. It is included in a bill being worked on in the Foreign Relations Committee that is expected to be part of a package of legislation sponsored by Senate Majority Leader Chuck Schumer and Indiana Republican Senator Todd Young intended to bolster U.S. competitiveness on a variety of fronts. They plan to introduce the measure soon, and Schumer has said he wants the Senate to pass it in the coming weeks.

U.S. Education Department data show that China sent $226 million to colleges in the U.S. between July 2019 and last September, the most of any country. That was followed by England, with $202 million, Australia at $170 million, Canada at $158 million and Saudi Arabia with $131 million.

Reviews would be conducted by the Committee on Foreign Investment in the U.S., known as Cfius, an interagency panel led by the Treasury Department that examines foreign acquisitions of American businesses. The panel has the power to impose conditions on investments it reviews or recommend that the president block them.

In addition to scrutinizing funding tied to technology research, the panel would gain the power to look at gifts and contracts that carry conditions such as faculty employment. Cfius would have to report to Congress whether there are “foreign malign influence or espionage activities” aimed at obtaining research and development knowledge from universities or “secrets related to critical technologies.”

The Council, the Association of American Universities, the Association of Public and Land-grant Universities and the Association of American Medical Colleges sent a letter Tuesday to the Foreign Relations Committee to opposing giving Cfius such sweeping authority. Doing so, it said, “would damage U.S. research and our economic competitiveness.”

Foreign Relations Chairman Bob Menendez of New Jersey said the Cfius provision was the product of a weeks-long negotiation between him and Risch aimed at gaining bipartisan support. Risch said Republicans are unlikely to support the broader package if it’s not included.

“We think that we’ve struck a sweet spot,” Menendez said.

The Education Department has long required schools to report contracts with or gifts from the same foreign source worth $250,000 or more. But the Trump administration last October accused educational institutions of “pervasive noncompliance” with disclosure rules and said it had uncovered $6.5 billion in previously unreported financing that came from countries including China and Russia.

And under former President Donald Trump, the Justice Department started its China Initiative to counter economic espionage, a campaign that in part focused on so-called non-traditional collectors of information like academic researchers who are in a position to transfer technology overseas.

In January, a professor at the Massachusetts Institute of Technology was charged by the Justice Department for failing to disclose to the Department of Energy millions of dollars in funding that prosecutors said came from China.

The congressional proposal to review foreign donations is intended to identify and stop just that kind of activity, said Richard Sofield, a lawyer at Wiley Rein LLP in Washington who works on Cfius reviews.

“What the government’s been concerned about is these non-traditional collectors coming over here and exploiting that free give-and-take in the academic environment to acquire information and technology that gets brought back to China, and used to advance China’s goals,” he said.

Research Projects

But Terry Hartle, a senior vice president of the American Council on Education, said the proposal risks damaging scientific innovation in the U.S. A foreign pharmaceutical company that is developing a vaccine would need Cfius approval to partner with a U.S. university to run a clinical trial, he said.

“Giving the federal government prior approval on research projects that are not funded by the federal government is unprecedented,” Hartle said.

Jim Lewis at the Center for Strategic and International Studies in Washington agreed the U.S. should be paying attention to national security risks around China’s reliance on American universities to learn advanced technology. But he said existing counterintelligence and export-controls laws are probably more appropriate tools rather than Cfius.

“There’s a real problem, but this probably isn’t the fix,” he said.

In addition to direct funding, colleges often depend on foreign students who pay the full price of tuition. Because of the coronavirus pandemic and related travel restrictions, the number of international students at U.S. campuses has declined.

Even before the pandemic, foreign enrollment dropped as the Trump administration tightened rules on student visas, and universities worry about further discouraging students from other countries. About one-third of international students are from China.

Rich DeCapua, founding president of the Global Alliance for International Student Advancement, a nonprofit that helps develops best practices for colleges to recruit and retain international students, said scrutiny of foreign funding could further damage an already deteriorating enrollment pipeline.

“Chinese students are now looking at institutions in Europe and more Canada more favorably,” he said. “There could be an inverse, an unfortunate side effect that legislation meant to make us more competitive with China makes us less competitive with other countries because of the view of the unwelcomeness of the United States.”

Risch said the bill isn’t aimed at students:“What it’s designed to do is to eliminate the malign influence that cash has when it comes to influencing people’s decisions.”

(Updates with letter from college trade groups in the 11th paragraph.)

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