Presented by

Editor’s note: Morning Money is a free version of POLITICO Pro Financial Services morning newsletter, which is delivered to our subscribers each morning at 5:15 a.m. The POLITICO Pro platform combines the news you need with tools you can use to take action on the day’s biggest stories. Act on the news with POLITICO Pro.

Capitol Hill Republicans are trying to come together on China policy, after an internal feud derailed investment restrictions from riding on this year’s must-pass defense bill.

MM this week caught up with key lawmakers who’ve been tasked with working out a compromise. The takeaway: It’s far from a slam dunk.

The rift is revealing deep tensions between national security and economic priorities when it comes to implementing a policy objective that many Republicans will be running on this year: curtailing China’s global influence.

House China hawks led by Foreign Affairs Chair Michael McCaul (R-Texas) are confident they have the upper hand with legislation that would try to curb capital flowing from the U.S. into certain sectors of China’s economy, including AI and quantum computing. They’re facing off with Financial Services Chair Patrick McHenry and top Republicans on his committee, who want to instead use company-specific sanctions. McHenry and his deputies warn that a new kind of government crackdown on U.S. investment in China could end up hurting Western influence. The stakes are high for the business community.

McCaul and McHenry are working with House leadership on negotiating a compromise early next year. McCaul told MM that Republicans are looking at a hybrid approach that could include sanctions and a prohibition to invest in certain sectors. But he left open the possibility that the sides may be irreconcilable. McCaul said his version, which is backed by outside conservative groups and has support from Democrats, could probably sail through the House. It’s also backed by Sen. John Cornyn, a fellow Texas Republican who’s been driving the issue across the Capitol.

“If there’s a way to do this, we will,” McCaul said of the compromise talks. “If it becomes problematic, another option is we could put our separate bills on the floor separately.”

McCaul boiled down the rift like this: “My approach is more China-hawkish. It’s more national security-focused and based, where Patrick’s — I’ll let him define his bill — but I see it as more of a Wall Street approach.”

McHenry told MM: “We need a solution that cuts off revenue for the CCP’s military-industrial complex without kneecapping one of our greatest strategic assets — our capital markets.”

Rep. Andy Barr, who drafted the sanctions bill and sits on both Foreign Affairs and Financial Services, said in an interview that his entity-based approach “is what the private sector deserves and needs.” (To be sure, some in industry also have concerns about the impacts of Barr’s bill.)

“They need a red-light, green-light approach,” Barr said. “Something that provides them with certainty and clarity unlike a broad, sector-based approach or reverse CFIUS that risks creating a new bureaucracy that would regulate Americans’ investments abroad.”

McHenry said he’s committed to working with House colleagues on legislation that uses sanctions and export controls. But McHenry, who is retiring from Congress at the end of his term, signaled he has limits.

“This is an important debate that Congress must have, but our arguments should be rooted in policy, not platitudes,” he said. “We can all say we’re tough on China, but at the end of the day if your approach advances Xi Jinping’s own goal of targeting Western investment in Chinese companies, I wouldn’t put my name on that.”

Happy Thursday — Your MM host will be at the World Economic Forum in Davos next month. Will you be there? Let me know at [email protected].

Georgetown University’s Psaros Center holds a webinar on crypto policy with Jay Clayton and Tim Massad at noon

Waiting for French Hill – The conventional wisdom among watchers of the House Financial Services Committee is that the race to succeed Chair Patrick McHenry will come down to two lead candidates, Rep. Blaine Luetkemeyer of Missouri and French Hill of Arkansas. Others will no doubt be in the mix.

Hill may be an early favorite for K Street, according to lobbyists who spoke with MM, though he hasn’t announced his intentions. Hill’s got the “adult in the room” perception similar to McHenry, Wall Street’s steady hand for whom he’s served as vice chair this year.

Hill and Luetkemeyer are both steeped in committee policy and have worked in the banking industry. Hill is a former Treasury official and Luetkemeyer was once a bank regulator. Luetkemeyer has served for longer on the committee and has the seniority advantage. He previously served as the top Republican on House Small Business.

But Luetkemeyer may be more of a wild card in the eyes of industry. MM yesterday highlighted potential tension around his Jan. 6, 2021, vote and the rift it drove between him and the business community. He’s also been willing to openly challenge financial giants, in particular for their approaches to environmental and social issues and China. He’s seen as relatively bank-centric, which may stoke concern among nonbank firms at a time when they’re facing heightened scrutiny. Hill is also more of a known quantity to the crypto world, after leading work on McHenry’s landmark digital asset legislation this year.

It would all come down to who has sway at the House GOP steering committee, which will make the decision. It’s where Speaker Mike Johnson (or whoever has that job at the time) would be able to put his thumb on the scale.

“They have a really deep bench on that committee,” Rep. Kelly Armstrong of North Dakota told Eleanor Mueller. “They all would be really good. That’s why it’s gonna be a tough conversation.”

Rep. Byron Donalds, who serves on Financial Services and steering, told Eleanor he isn’t taking sides but to expect a “battle royale” for McHenry’s post.

Maxine Waters on McHenry — The California Democrat released a statement outlining how well the pair have worked together for years, despite their political differences.

“When Republicans took control earlier this year, many Democrats on this side, including myself, were wondering what type of Chairman Mr. McHenry would be, and two words that are often used are fair and respectful,” she said. “I recognize that this decision to retire was likely not an easy one, but the American public appreciates the service he and his family have given over the past 20 years.”

Bank CEOs boost Warren’s crypto crackdown — Sen. Elizabeth Warren used Wednesday’s bank CEO hearing to tease out some industry support for her bipartisan push to impose stricter anti-money laundering requirements on crypto firms.

JPMorgan Chase CEO Jamie Dimon, who’s usually at odds with Warren over financial policy, probably had the most powerful soundbite.

“I’ve always been deeply opposed to crypto, bitcoin, etc,” he said, adding that its “true use case” is criminal activity.

“If I was the government, I’d close it down,” he said.

Victoria Guida reports that Dimon’s pitch at the hearing was to privatize the FDIC, during a discussion on policy lessons from Silicon Valley Bank’s collapse.

“The American public should know that banks pay for the FDIC,” he said. “That’s not government money, that is a mutual company, and I would love to take it over, and take it off your hands and manage it ourselves.”

Brown eyes floor votes on Banking bills — Banking Chair Sherrod Brown told Eleanor that he’s working toward a Senate vote early next year on the executive accountability bill he crafted with Sen. Tim Scott. Other bills in the queue include cannabis banking and fentanyl trafficking legislation.

“I want to get set up [so] that we know we can do RECOUP, SAFER Banking and FEND Off, if we haven’t done it — and the rail bill — all early in the year,” he said.

"[Majority Leader Chuck Schumer] wants to schedule this stuff,” Brown said.

Coming soon: Treasury clearing rules — Declan Harty reports the SEC will vote next Wednesday on rules that would move a swath of trading in U.S. government debt through clearinghouses. The highly anticipated regulation is one of several Treasury market reforms from the SEC as Chair Gary Gensler sounds the alarm on trading conditions.

A BNPL warning — The OCC is telling banks that buy-now, pay-later products pose credit, compliance and reputation challenges to the firms and that lenders should make sure that marketing materials are clear, per Bloomberg.