Treasury Secretary Janet Yellen kicks off her trip to China this week. Wall Street will be watching closely for any indication of where things stand on President Joe Biden’s widely anticipated executive order on outbound investments. Administration officials have been fine tuning the order for months. They have already said the final product will allow American regulators to review and deny U.S. financing for Chinese advanced microchips, artificial intelligence and quantum computing. “Until they come out with the specific guidance, it’s going to be difficult to understand what’s covered by this. I could see this being dangerous if it’s these amorphous categories rather than specific examples,” Daniel Tannebaum, a partner and global anti-financial crime practice leader at management consulting firm Oliver Wyman, told MM. The order could be vexing for certain firms if it’s broadly contoured to “amorphous categories rather than specific examples.” That’s particularly true for buyout and venture capital firms whose investments in private companies are much harder to sell than a stock or a bond. Major private equity firms like General Atlantic, Blackstone Group and Warburg Pincus raised billions from state retirement systems and endowments to invest in Chinese companies during the previous decade. And while U.S. investment in China slowed amid mounting tensions between the two governments, the pending order has alarmed investors — including California State Teachers’ Retirement System CIO Christopher Ailman — who are wary of their capital getting stuck in a geopolitical limbo. For now, many Wall Street lobbyists are taking a wait-and-see approach before publicly airing their concerns. While they’re happy to talk about the potential unintended consequences — including, as House Financial Services Chair Patrick McHenry (R-N.C.) has argued, further diminishing U.S. influence over Chinese companies — “they’re not going to spend a lot of political capital defending investment in China,” one lobbyist said. Moving too aggressively could agitate China hawks on either side of the aisle. And with Congress set to work on the $886 billion National Defense Authorization Act after the recess, it’s likely lawmakers will use that process to pressure Biden on his outbound order. (To wit, Reps. Rosa DeLauro (D-Conn.), Bill Pascrell (D-N.J.) and Brian Fitzpatrick (R-Pa.) filed an amendment to the NDAA last week that would establish a committee to review investments for national security risks.) Still, given how long it’s taken for the White House to finalize the outbound E.O., and the degree to which its scope has already been narrowed, holding fire might prove effective. “The bark may be more significant than the bite,” said Tannebaum. “The way in which something is messaged — versus how it lands when you get into the black and white — isn’t always the same.” IT’S WEDNESDAY — We hope you had a great Fourth of July and aren’t feeling the effects of beer, dip and dogs this morning. That might not be the case for your host (he’ll survive). Send tips, gossip and suggestions to ssutton@politico.com and to Zach at zwarmbrodt@politico.com.
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