On Wednesday, President Joe Biden enacted an executive order that will curtail certain new American investments in China’s technologically sensitive domains, such as computer chips, while necessitating government notification in other segments of the tech sector.
The much-anticipated order grants authorization to the U.S. Treasury secretary to potentially impede or restrain U.S. investments in Chinese entities across three sectors: semiconductors and microelectronics, quantum information technologies, and specific artificial intelligence systems.
While the administration has indicated that the restrictions would be applicable to “limited subsets” within these three areas, specific details were not disclosed, and the proposition is presently open for public input.
The primary objective of the order is to prevent American capital and expertise from contributing to China’s advancement in technologies that could bolster its military modernization and undermine the security of the United States. The executive action zeroes in on private equity, venture capital, joint ventures, and greenfield investments.
In a letter addressed to Congress, Biden, a member of the Democratic party, highlighted that he was invoking a national emergency in response to the threat posed by nations like China, particularly in “sensitive technologies and products critical to the military, intelligence, surveillance, or cyber-enabled capabilities.”
“Grave concern”
In response, China expressed “grave concern” regarding the order, asserting its right to take appropriate measures. The statement from the Chinese Commerce Ministry highlighted how the decree could affect the operational dynamics and decision-making of enterprises, underscoring its potential to disrupt the international economic and trade framework.
The ministry’s statement also emphasized the hope for the U.S. to honor the principles of the market economy and fair competition, while refraining from artificially impeding global economic and trade exchanges, cooperative efforts, or erecting obstacles that could hamper worldwide economic recovery.
China’s foreign ministry voiced its strong dissatisfaction and resolute opposition to the U.S.’s insistence on introducing investment restrictions on China. Additionally, China lodged solemn representations with the U.S.
China urged the U.S. to fulfill Biden’s commitment to not sever ties with China or obstruct its economic progress. The ministry stressed this sentiment in a statement, underscoring the necessity for the U.S. to adhere to its promise.
SEMICONDUCTORS A PRIORITY
The proposition primarily centers on investments in Chinese firms engaged in software development for designing computer chips and the creation of tools for their production. The U.S., Japan, and the Netherlands currently dominate the fields of interest, while China is actively working to establish domestic alternatives.
Consultation with allies and the incorporation of feedback from Group of Seven nations characterized the plan’s development, according to the White House.
Chuck Schumer, Senate Democratic Leader, emphasized, “American money has fueled the Chinese military’s ascent for far too long.” He regarded the move as a strategic initial step in preventing American investments from contributing to China’s military progress.
It’s important to note that the regulations will exclusively impact prospective investments, leaving existing ones unaffected, as confirmed by the Treasury. Nonetheless, there might be a request for disclosure regarding prior transactions.
This decision holds the potential to escalate tensions between the world’s largest economies. The Chinese embassy in Washington expressed its “deep disappointment” with the measure.
U.S. officials underlined that these prohibitions are targeted at addressing “the most critical” national security risks, rather than aiming to sever the interconnectedness of the two countries’ economies.
Critics among the Republicans voiced concerns about the order containing various loopholes, such as its applicability solely to future investments, and criticized it for not being sufficiently assertive.
SOME EXEMPTIONS EXPECTED
The order will prohibit some deals and require investors to notify the government of their plans on others. The Treasury said it anticipates exempting “certain transactions, including potentially those in publicly traded instruments and intracompany transfers from U.S. parents to subsidiaries.”
The Chinese tech industry, once a magnet for U.S. venture capital, has already seen a drastic decline in U.S. investment amid intensifying geopolitical tension.
Last year, total U.S.-based venture-capital investment in China plummeted to $9.7 billion from $32.9 billion in 2021, according to PitchBook data. This year so far, U.S. V.C. investors only put $1.2 billion into Chinese tech startups.
REPUBLICAN SEES MANY LOOPHOLES
Republican Senator Marco Rubio said the Biden administration’ plan was “almost laughable.”
“It is riddled with loopholes, explicitly ignores the dual-use nature of important technologies, and fails to include industries China’s government deems critical,” he said.
A spokesman for the Chinese embassy in Washington said the White House had not heeded “China’s repeated expression of deep concerns” about the plan.
The spokesman said more than 70,000 U.S. companies do business in China. The restrictions will hurt both Chinese and American businesses, interfere with normal cooperation and reduce investor confidence in the U.S., he said.
The Semiconductor Industry Association said it hopes the order will enable “U.S. chip firms to compete on a level-playing field and access key global markets, including China.”
Emily Benson of the Center for Strategic and International Studies (CSIS), a bipartisan policy research organization, said key questions are how the plan affects U.S. allies and how China responds.
Reporting by David Shepardson, Andrea Shalal, Stephen Nellis, Max Cherney, Krystal Hu and Karen Freifeld; additional reporting by Idrees Ali, and Liz Lee in Beijing; Editing by Lincoln Feast, Jonathan Oatis, Cynthia Osterman and Michael Perry