U.S. President Joe Biden will issue a long-anticipated executive order on Wednesday (August 9) afternoon, banning U.S. venture capital and private equity firms from investing in sensitive Chinese technology companies and requiring the U.S. government to be notified of other investments. It is the latest development in Washington’s efforts to prevent China from developing cutting-edge technologies that could be used to modernize its military and endanger U.S. national security.
According to reports, the executive order will cover direct investment in semiconductors, quantum computing and artificial intelligence (AI), three technology areas, to prevent the transfer of US funds and expertise to China, and to prohibit some forms of investment in these technologies. investment, while requiring Americans doing business in China to more broadly inform the U.S. government about their investments in these three high-tech sectors.
Investors who violate these rules could face fines and be forced to withdraw their funds, the report said. The new rules will apply to future transactions, but exclude portfolio investments in Chinese stocks and bonds.
Technically, the restrictions would also apply to investments in other adversary countries such as Russia, but are expected to primarily have a practical impact on U.S. investment in China, the report said.
Reuters reported on Wednesday that Biden administration officials have stressed for months that any restrictions on U.S. investment in China would be limited. The president’s national security adviser Sullivan said in April that the measures were not a “technical blockade,” as Beijing called them.
Supporters say the Biden administration’s new restrictions on U.S. investment in certain Chinese technology industries are necessary to protect national security but will undoubtedly anger Beijing, the New York Times said on Wednesday.
The measure would be one of the first major steps the United States has taken to curb financial flows amid its economic conflict with China and could set the stage for more investment restrictions between the two countries in the coming years.
The New York Times quoted Emily Benson, director of the trade and technology program at the Center for Strategic and International Studies, a Washington think tank, as saying, “There is increasing evidence that American capital is being used to improve China’s military capabilities, and the United States lacks sufficient The US government has recently sought to
ease relations with China, sending Treasury Secretary Janet Yellen, Secretary of State Blinken and other senior officials to visit China to hold dialogues with their counterparts. But at the same time, the U.S. government continues to promote the “de-risking” of key supply chains by developing suppliers outside of China, and has steadily increased restrictions on the sale of certain technologies to China, including manufacturing equipment for semiconductor chips used in advanced computing. .
The Wall Street Journal stated that while Biden administration officials said these measures were targeted measures aimed at protecting US national security, Chinese government officials said that these measures were intended to weaken China’s economic growth and development. Chinese Communist Party leader Xi Jinping complained to Biden last year about U.S. export controls on semiconductors. Earlier this year, China banned major domestic companies from buying chips from Micron Technology (MU), the largest U.S. maker of memory chips, in a move widely seen as retaliation for U.S. export curbs.
The latest U.S. investment restrictions on China’s sensitive technology sector may again affect the two superpowers’ efforts to seek a diplomatic thaw, the report said.
The report said that as the geopolitical competition between the United States and China has intensified, American investment in China, which has helped promote China’s economic development, has slowed down in recent years. According to data from the Rhodium Group, U.S. direct investment in China was $8.2 billion last year, a 20-year low, while U.S. venture capital investment in China was only $1.3 billion last year, a 10-year low.
It was unclear how much of that money went to the latest sensitive technology sector in China, the report said. Between 2015 and 2021, U.S. investors participated in 401 deals for Chinese AI companies, according to a report by researchers at Georgetown University. Investments from U.S. investors alone totaled $7.45 billion during the period.
U.S. restrictions on investment in China’s sensitive technology industries generally enjoy bipartisan support in the United States. Last year, a bipartisan group of lawmakers called for an interagency committee to examine technology investments more broadly. This year, two lawmakers brought up the plan in an amendment to the annual defense policy bill passed by the Senate. Their proposed legislation, which would require disclosure of investments, rather than prohibit them, may not become law.
Rep. Mike Gallagher, R-Wis., chairman of the House China committee, called for restrictions on larger U.S. portfolio flows into China as well. In a recent letter, the committee criticized BlackRock (BLK) and top stock index data firm MSCI (MSCI) for facilitating investment in certain Chinese companies that the U.S. government has accused of supporting China. the military and violate human rights.
The report also stated that within the Biden administration, officials from the Ministry of Finance and the Ministry of Commerce had previously successfully managed to limit the scope of the executive order. Treasury Department officials had feared creating a hard-to-enforce set of rules, wanted to preserve many U.S. investments in China, and pushed for the rules to target technologies that are particularly sensitive to national security. U.S. Treasury Department officials have historically been responsible for advocating for more, not less, U.S. investment in China.
The report said that the United States has also asked its allies in Europe and Asia to take similar measures to restrict investment in China, hoping to prevent companies from easily investing in China through or by detour. The Group of Seven, lobbied by the US, agreed this spring that capital controls could be an important complement to existing tools for targeting controls on exports and inbound investment. The European Commission has recommended that the 27-member bloc adopt restrictions on overseas investment.