By Alec Zimmerman

The federal Paycheck Protection Program (PPP), part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, is a loan program overseen by the Small Business Administration (SBA) that helps businesses keep their workers employed during the COVID-19 pandemic.

SBA officials say they have loaned $525 billion to over five million small businesses through August 8. About 107,000 businesses in Washington state have received PPP money, totaling over $12.4 billion. Based on data reported by employers to the SBA, more than 550,000 jobs were retained in the state.

U.S. federal funds intended to provide COVID-19 emergency relief to American-owned small businesses are instead benefiting numerous firms tied to the People’s Republic of China (PRC). According to an analysis of PPP loan data from the U.S. Department of the Treasury, more than 125 companies owned or invested in by entities based in China received between $192 and $419 million in emergency loans. Moreover, at least 32 companies owned by Chinese entities received over $1 million in loans each, totaling between $85 and $180 million.

The majority of PPP loans were funded in the range of $150,000-350,000 and some up to $5 million. Among the 125 companies, 74 recipients operate in “critical and strategic” sectors, including automotive manufacturing, pharmaceuticals and medical technology, advanced manufacturing (i.e. robotics), telecommunications, financial technology, entertainment, and media. The authors of the review concluded that “without appropriate policy guardrails, U.S. tax dollars intended for relief, recovery, and growth of the U.S economy–and small businesses in particular–risk supporting foreign competitors namely China. In the process, they may support an agenda that runs contrary to U.S. economic and security interests.”

On April 28, Treasury Secretary Steven Mnuchin announced that large companies that do not meet the program’s revised requirements will be held criminally liable if they do not repay loan money. However, the current rules allow businesses with fewer than 500 employees to apply for money, including U.S. subsidiaries of China-owned companies.

On July 17, Attorney General Bill Barr said “The People’s Republic of China is now engaged in an economic blitzkrieg” including the “‘Made in China 2025’ initiative, a plan for PRC domination of high-tech industries like robotics, advanced information technology, aviation, and electric vehicles, and many other technologies. Backed by hundreds of billions of dollars in subsidies, this initiative poses a real threat to U.S. technological leadership.”

The COVID-19 pandemic has highlighted the impact of trade with China and the outsourcing of manufacturing to China during the past thirty years. About 97 percent of antibiotics, 48 percent of personal protection devices, and 70 percent of face masks sold in the U.S. are from China. China has increasingly forced technology transfers on U.S. firms, requiring them to transfer their technologies to China for access to its market.

U.S. companies choose to outsource or offshore to China for a variety of reasons. For example, U.S. firms can outsource jobs to China because worker skills are similar while wages are much lower. Often, outsourcing and offshore can reduce costs. PPP money going to Chinese backed firms worsens the already evident consequences of outsourcing on the U.S. economy.

Government capital and resources, including PPP money, should only be given to U.S. based firms. The purpose of the PPP is to provide an incentive for small businesses to keep workers on their payroll and promote a U.S. economic stimulus during the COVID-19 pandemic, not benefit foreign-owned companies. U.S small businesses hurt by the pandemic should take priority for receiving PPP money. Additional government oversight and accountability measures are needed to ensure that the intended U.S. small businesses receive PPP money.

– Zimmerman is a Janet and Doug True Research Intern with the Washington Policy Center