China Benefits From Tax Breaks Meant to help U.S. Companies Compete with China

It would be quite the scandal if a fund intending to help arson victims paid benefits to arsonists. So what excuse is there for a loophole in U.S. law that lets Chinese companies benefit from tax incentives intended to help for U.S. companies compete with unfair Chinese trade?

The One Big Beautiful Bill Act of 2025 (OBBBA) included restrictions on Chinese-controlled battery companies from accessing American manufacturing and energy tax incentives. But this restriction failed to exclude Chinese companies working through U.S. subsidiaries, contractual arrangements, and nominally domestic operations.

China has proven to be remarkably adept at circumventing the intent of trade restrictions imposed by legislation. The House Select Committee on the Chinese Communist Party has pressed the Department of the Treasury over whether Gotion High-Tech, a Chinese manufacturer of lithium-ion batteries, should receive U.S. taxpayer support. The Committee urged federal action concerning forced-labor in the supply chains of both Gotion and CATL (Contemporary Amperex Technology Co. Limited), the world’s largest producer of lithium-ion batteries for cars.

Undeterred by the laws and regulations of the United States, Chinese parent companies are establishing U.S. subsidiaries and domestic facilities that position them to benefit from federal incentives while Chinese ownership, technology, management, personnel, and supply-chain influence remain intact.

Cases in Ohio and North Carolina demonstrate how Chinese parent companies can establish a nominally American operation, obtain favorable public treatment, but still maintain Chinese ownership, technology, management, and personnel.

SEMCORP, a major Chinese producer of lithium-ion battery separator film, established SEMCORP Manufacturing USA LLC to develop a facility in Sidney, Ohio. The project was promoted as a $900 million investment that would create over 1,000 jobs.

SEMCORP came up short in fulfilling those promises. Reducing its commitment to 300 jobs, it now reports employing just over 120 people. They’ve also brought workers to Ohio through L-1 visas and advertised positions identifying Mandarin fluency as a preferred qualification.

While Ohio wisely canceled SEMCORP’s proposed state Job Creation Tax Credit for failing to fulfill its commitment, the company still benefits from an active local Community Reinvestment Area agreement.

Similarly, Green New Energy Materials, the U.S. manufacturing subsidiary of Chinese battery-separator producer Shenzhen Senior Technology Material Co., plans to establish its first U.S. manufacturing operation in North Carolina with the support of state and local incentives. Like SEMCORP, Green New Energy Materials has listed fluency in Mandarin or Chinese as a preferred qualification for some positions.

The concerns Congress identified with Gotion and CATL are on full display with SEMCORP and Green New Energy Materials, but more immediate. SEMCORP is already operating in Ohio, already using personnel transferred from China, and already benefiting from favorable local tax treatment.

The pattern has become familiar for Chinese firms seeking to circumvent American trade policy while benefiting from taxpayer-funded incentives: establish an American subsidiary, obtain public support, but rely on Chinese management and technical personnel.

These companies point to American incorporation papers, factories on American soil, and even some American employees. But an American façade does not make the companies American, nor does it allay the concerns Congress identified: who ultimately controls the company, its technology, intellectual property, financing, equipment, key personnel, supplier relationships, profits, and strategic decisions?

That is the Chinese battery loophole Treasury must close.

The OBBBA’s foreign-entity provisions were intended to prevent companies tied to China and other adversarial nations from capturing federal benefits through corporate restructuring, U.S.- based subsidiaries, licensing arrangements, supplier contracts, or other formalities that conceal continued foreign control.

A Chinese parent company should not become eligible for American tax incentives merely because it creates an American subsidiary. And if that subsidiary remains dependent upon a prohibited foreign entity for its technology, intellectual property, equipment, components, financing, executives, or operational personnel, it should not qualify as an independent American producer.

As with all laws, the efficacy of these restrictions is dependent upon enforcement. Treasury should strengthen the consequences for Chinese entities that receive American taxpayer-funded incentives, requiring full recapture of improperly claimed incentives and referring misrepresentations for criminal or civil enforcement.

Treasury should also apply a rigorous review process for companies seeking incentives, like the Advanced Manufacturing Production Credit and the Clean Electricity Investment Credit, available to battery manufacturers to ensure prohibited foreign entities don’t receive benefits intended to encourage American battery production.

Finally, they should clarify that domestic incorporation, final assembly in the United States, or partial hiring of American workers are not the sole requirement for eligibility of these incentives, especially when effective control remains in China.

The OBBBA made it clear that American tax incentives must build American-owned, American-controlled, and genuinely independent industrial capacity, not subsidize Beijing’s industrial strategy through nominally domestic corporations. Treasury needs to ensure that Congress’s intent is not circumvented by lax enforcement.

Gerard Scimeca is chairman and general counsel for CASE, Consumer Action for a Strong Economy, a free-market oriented consumer advocacy organization.

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