(Bloomberg) -- Speaker Mike Johnson rejected bipartisan efforts to use a must-pass defense bill to tighten controls on US investment in Chinese technology, tasking several of his chairmen instead with resolving their differences on the matter by early next year, people familiar with the decision said.  

The decision is a severe blow to efforts to require firms to notify the government about certain investments in China and other countries of concern. The language, which has bipartisan backing, aligns with an executive order by President Joe Biden to curb spending on high-tech sectors in the world’s second-largest economy. 

The so-called outbound investment issue has pitted House Financial Services Chairman Patrick McHenry, who opposes the language, against Foreign Affairs Chairman Michael McCaul and China select committee Chairman Mike Gallagher, opening a Republican fracture over China.  

Congressional leaders plan to release the compromise defense authorization bill, known as the NDAA, on Monday.

“Outbound investment is not going anywhere in the NDAA, but we know we have to do something on this,” said Andy Barr of Kentucky, a senior Financial Services Committee member. “We know that it’s a national security imperative. We also know that we’ve got to be careful and thoughtful about it so that we don’t unduly impair US competitiveness.”

Barr said he expects all financial services provisions to be dropped from the NDAA, including McHenry’s push to include crypto bills that passed his committee as well as the Senate’s outbound investment amendment.

Johnson has assigned Barr, McHenry, McCaul and Gallagher, as well as Majority Leader Steve Scalise, to hash out the issue in the first quarter of 2024, Barr said.

“We’re on the right path now,” Barr added. 

The Senate measure would have required US companies to notify the government before investing in semiconductor, artificial intelligence, quantum computing and other high-tech firms in China and other countries of concern. The goal, supporters say, is to knee-cap Beijing’s military prowess by cutting China off from US technological innovation.

The Senate had overwhelmingly voted to attach the measure to their version of an annual defense bill, but the House blocked it from the final package this week amid determined opposition from McHenry. The North Carolina Republican has long favored sanctioning individual companies rather than a sector-based approach. 

McCaul has been working on a Plan B: a standalone bill that actually restricts outbound investment to China, going beyond the notification required in the original Senate measure. Texas Senator John Cornyn said Johnson agreed to “consider” bringing that bill up for a floor vote after the Foreign Affairs Committee unanimously approved it on Wednesday.

But dropping the measure from the defense bill, which lawmakers plan to pass before the end of the year, ensures the House “will close out its first year of Republican leadership without notching any meaningful legislative accomplishments” on China, the conservative Heritage Foundation wrote in a Wednesday lobbying push.

Read More: House Prepares to Drop China Investment Curbs From Defense Bill

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