Washington DC, USA: US President Joe Biden announced on Wednesday an executive order aimed at restricting certain American investments in sensitive high-tech areas in China – a move Beijing blasted as being anti-globalization. The long-anticipated rules, expected to be implemented next year, target sectors like semiconductors and AI, as Washington seeks to limit access to key technologies.
“The commitment of the United States to open investment is a cornerstone of our economic policy and provides the United States with substantial benefits,” Biden said in a letter to congressional leaders announcing the executive order. “However, certain United States investments may accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter US and allied capabilities.”
The program is set to prohibit new private equity, venture capital, and joint venture investments in advanced semiconductors and some quantum information technologies in China, according to the Treasury Department. A senior government official, speaking on condition of anonymity, stated, “The outbound investment program will fill a critical gap in the United States’ national security toolkit. What we are talking about is a narrow and thoughtful approach as we seek to prevent China from obtaining and using the most advanced technologies to promote military modernization and undermine US national security.”
The Treasury is considering notification requirements for US investment in Chinese entities involved in less advanced semiconductors and activities relating to certain types of artificial intelligence. The Treasury Department warned that China could exploit US investment to further its ability to produce sensitive technologies critical to military modernization. However, an exception is anticipated for certain US investments into publicly traded securities and transfers from US parents to subsidiaries.
China’s foreign ministry blasted the move as an attempt to engage in anti-globalization and “de-sinicization,” warning that it would resolutely safeguard its own rights and interests. “Beijing is strongly dissatisfied and firmly opposes the US insistence on introducing restrictions on investment in China,” the ministry said in a statement.
Chilling Effect?
Emily Benson, Director of the Project on Trade and Technology at the Center for Strategic and International Studies, noted, “While the volume of dollars or the number of transactions covered by a ban or notification regime is likely to be quite small, it does not necessarily mean the overall impact will be limited.” She added that the companies might reconsider the nature of their investment, potentially having a chilling effect on bilateral investment over time.
These latest restrictions come shortly after a visit by several high-level US officials to China, as Washington and Beijing aim to stabilize ties. During US Treasury Secretary Janet Yellen’s trip to China’s capital last month, officials from both sides discussed what such curbs might look like. She told reporters that any new moves would be implemented transparently. “I emphasized that it would be highly targeted and clearly directed narrowly at a few sectors where we have specific national security concerns,” Yellen said at the time. She added that she wanted to allay fears that Washington would implement measures with a broad-based impact on the Chinese economy.
Nicholas Lardy, a non-resident senior fellow at the Peterson Institute for International Economics, noted that the share of investment in China financed by foreign capital in recent years is about one to two percent. “If you want to have an impact, you have got to get other countries that are making these kinds of investments in China to have a similar regime,” he said.
On Wednesday, a senior government official stated that key allies and partners have recognized the importance of this issue, and some are seeking to align their policy approaches. Outbound investment curbs would not represent an all-out effort to prevent Washington and Beijing from cooperating more deeply, Benson noted. She said, “But the administration has been trying to land high-level meetings with Chinese officials, and it will fall on the US to really demonstrate through targeted language that this is not going to cause a huge disruption in investment.”
