EXECUTIVE SUMMARY
The United States is facing a new form of strategic dependence: Chinese-linked firms are reentering critical American industries through influence and control rather than visible ownership.
Even when equity stakes fall below Treasury’s 25 percent FEOC threshold, these companies retain leverage through technology licensing, supply-chain dependence, embedded software, exclusive supply agreements, and PRC-directed financing. Treasury’s September 2025 FEOC rulemaking confirms that such influence is sufficient for a firm to be designated a foreign entity of concern. Under this updated interpretation, “material assistance” includes upstream dependence, PRC-origin equipment, embedded digital systems, engineering support, and contractual terms that enable Chinese influence—meaning equity dilution alone is no longer enough for compliance.
This control model now appears across solar, batteries, critical minerals, pharmaceuticals, metals, and advanced manufacturing. Firms restructure ownership on paper while keeping real operational control through licensing rights, feedstock reliance, long-term contracts, offshore intermediaries, and PRC-based engineering teams. These structures allow access to IRA, 45X, 48E, CHIPS Act incentives, and state subsidies while embedding Chinese leverage inside the very sectors that Section 232 findings have already identified as national-security vulnerabilities.
This is the core vulnerability: China no longer needs majority ownership to direct U.S. production. Technology, equipment, software, supply chains, and contractual rights now provide the channels of control. As a result, U.S.-based facilities marketed as “domestic manufacturing” often remain functionally dependent on Chinese oversight and inputs.
Restoring the Section 232 principle is essential. Section 232 determinations were designed to ensure that America—not a foreign adversary—controls the industrial capacity required for national security. Allowing PRC-linked firms to claim U.S. subsidies or operate tariff-jumping production through restructured ownership undermines that purpose and entrenches strategic dependence.
At the same time, this vulnerability presents a major economic opportunity for non-Chinese manufacturers operating in the United States. Enforcing FEOC rules consistently with Section 232 would immediately shift market share, federal incentives, private investment, and long-term contracts toward firms that are genuinely independent of PRC control. Domestic and allied producers in solar components, batteries, metals, pharmaceuticals, and critical materials are positioned to expand U.S. production, hire American workers, and invest in new capacity once Chinese-controlled competitors can no longer masquerade as compliant U.S. entities. Strong FEOC enforcement is therefore not only a national-security imperative—it is a catalyst for revitalizing American industrial growth.
Treasury already holds the authority to act. By applying FEOC standards based on functional control, material assistance, and related-entity aggregation, Treasury can ensure that U.S. taxpayer funds support sovereign, secure, and domestically rooted production—not Chinese-controlled operations structured to evade oversight.
China’s restructuring tactics create a serious strategic vulnerability, but also a transformative opening. If Treasury enforces FEOC rules as intended and aligns subsidy eligibility with Section 232’s core purpose, the United States can eliminate adversarial control and unlock significant new investment, production, and job creation for U.S.-based non-Chinese manufacturers across multiple critical industries.
