Senator Rob Portman (R‑OH), the ranking member of the Senate Homeland Security and Governmental Affairs Committee, released a new minority staff report on July 26 contending that, for more than a decade, China has made “a sustained effort … to gain influence over the Federal Reserve,” and that the Fed has failed “to combat this threat effectively.” Although the report (hereafter, the Portman Report) recognizes that a balanced approach toward relations between the People’s Bank of China (PBC) and the Fed is desirable, the rhetoric of the report heavily tilts toward zero-sum thinking—namely, that Chinese gains are U.S. losses.
The report, titled “China’s Threat to the Fed: Chinese Influence and Information Theft at U.S. Federal Reserve Banks,” takes a strong position that China is guilty of targeting the Federal Reserve “to undermine American economic and monetary policy,” and that the Fed is complacent in failing to prevent those intrusions. There is some evidence to support the first accusation, although it is weak; but there is little evidence that the Fed is lax in protecting sensitive information. Indeed, in his letter to Portman, Fed Chair Jerome Powell states, “We are deeply troubled by what we believe to be the report’s unfair, unsubstantiated, and unverified insinuations about particular staff members.” He defends the Fed’s efforts to prevent leaks of confidential information while nourishing an environment conducive to scholarly engagement. As he put it:
Economic research is vitally important to central banks, and our economists often collaborate with other scholars here in the United States and around the world. All of that collaboration is undertaken with the aim of deepening and broadening our understanding of critical issues.… We post our most important economic models publicly on our website so that people can engage with us and these models.… However, information security considerations also shape this engagement.
The report makes two large errors: first, it appears to share misconceptions about how information could be used to help China and/or harm the United States; second, in the cases where China did seek nonpublic information that could be useful to China, the report wrongly accuses the Fed of failing to protect information that is sensitive.
This article examines the case against China, raises three major questions about the report, and finds that Fed Chair Powell’s criticism of the report is largely correct.
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