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News Junction > Blog > World News > Biden order will propose new restrictions on China technology investment
Biden order will propose new restrictions on China technology investment
World News

Biden order will propose new restrictions on China technology investment

Published August 9, 2023
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President Biden is set to sign an executive order Wednesday aimed at curbing the flow of U.S. investment into a limited range of Chinese firms that the administration fears could fuel Beijing’s military ambitions.

The order is a narrow, initial step that will not take effect until next year, but it is a signal to China’s leadership that Washington — despite a recent warming in diplomatic relations — intends to continue to impose restrictions on Beijing’s access to critical technology.

Chinese officials reacted sharply to the news of the pending executive order. “The U.S. habitually politicizes technology and trade issues and uses them as a tool and weapon in the name of national security,” Chinese Embassy spokesman Liu Pengyu said in a statement to The Washington Post. “We will closely follow the developments and firmly safeguard our rights and interests.”

The expected White House order comes amid a tenuous thaw in a relationship marked by on-again, off-again engagement, which was frustrated by the appearance of a Chinese surveillance balloon over the continental United States earlier this year. Commerce Secretary Gina Raimondo is expected to travel to Beijing this month, following recent trips by Secretary of State Antony Blinken and Treasury Secretary Janet L. Yellen.

Leaked secret documents detail up to four additional Chinese spy balloons

The order, the product of a two-year internal debate, proposes a rule banning U.S. investment in three categories of Chinese companies: quantum computing, artificial intelligence related to military uses and advanced semiconductors.

It also proposes a requirement that U.S. venture capitalists and other “direct” investors notify the Treasury Department of prospective investment into restricted categories — particularly those involved with the Chinese military.

It comes as China seeks to develop a world-class fighting force by 2049, even as it faces a slowing economy.

The order launches a months-long process in which the administration will solicit comment on the proposed rule. That could result in changes to the regulation’s scope before it takes effect.

The investment restrictions are aimed at a handful of critical technologies related to the modernization of China’s military and internal surveillance capabilities, administration officials said.

The lengthy delay in issuing the order — there were expectations last year that the White House would move quicker — reflects the complex nature of figuring out where to draw lines around dual-use technologies such as artificial intelligence. The administration has also faced pressure from U.S. business interests that don’t want to be cut off from potentially lucrative investments in China.

For months, there has been intense internal debate over the scope of the Chinese restrictions, with the Treasury Department consistently advocating a narrow approach and the Pentagon pushing for a broader mandate. By late last year, the debate was settled in favor of a more limited scope, excluding, for instance, electric vehicles and biotechnology.

“This is hard to get right,” said Mike Pyle, deputy national security adviser, in a recent appearance at the Carnegie Endowment for International Peace. “These are very technical questions.”

During her visit to Beijing last month, Yellen sought to reassure Chinese counterparts that the investment curbs would be narrowly tailored to tackle specific national security concerns and are not aimed at slowing China’s economic advance.

Chinese officials are openly skeptical of the administration’s plan to carry out what Yellen describes as a “de-risking” of the U.S. relationship with China, with Beijing regarding it as a diplomatic euphemism for a broader economic decoupling Beijing fears would aggravate its economic malaise.

Bans on U.S. investment in Chinese technology are not unprecedented. At the tail end of his administration, President Donald Trump issued an order banning U.S. investment into a few dozen Chinese companies with alleged ties to the People’s Liberation Army. In 2021, the Biden administration expanded the order, banning U.S. financing of additional firms, especially those that sell surveillance technology.

Commerce blacklists firms selling U.S. technology for Chinese hypersonics

Analysts note that, for the moment at least, any such ban is likely to have minimal impact on China as U.S. investment has plunged, partly because of the lingering effect of stringent pandemic lockdowns, and partly because of increased scrutiny of Western firms, which has spooked business.

According to the Rhodium Group, U.S. venture capital in China last year reached a 10-year low at $1.3 billion, down from a peak of $14.4 billion in 2018.

Nonetheless, China is not hurting for capital. It has plenty of its own still to dole out, analysts say.

“While Western funds may be disappointed about lost opportunities in advanced technology investments in China, there’s so much domestic money chasing these deals China will not be hurt,” said Andrew Collier, managing director of Orient Capital Research in Hong Kong and the author of “China’s Technology War.”

“At the end of the day China needs technology,” Collier said, “not venture capital money.”

The Biden order is also aimed at gaining a deeper understanding of investment flows into emerging technologies in China. It is intended to plug gaps left by export controls, which restrict exports of sensitive technologies but not investments into companies that use those technologies.

The Post reported in late 2021 that Goldman Sachs had invested in a fast-rising Chinese artificial intelligence company, 4Paradigm, which had won an unpublicized contract with the Chinese military. In March, the Commerce Department placed 4Paradigm on its blacklist barring exports of U.S. technology to the firm. But U.S. investors are still allowed to make deals with the company. That is one of the areas an “outbound screening” program is intended to address, officials say.

U.S. companies are buying less from China as relations remain tense

Another key objective is preventing the transfer of management know-how to Chinese start-ups, officials say.

“There’s a mountain of evidence that China works through joint ventures to access technology and expertise — not just the hard technology, but the soft skills needed” to build successful enterprises, said Liza Tobin, an economic expert at the nonprofit Special Competitive Studies Project. “China has its own cash. One thing the U.S. uniquely offers is expertise from Silicon Valley and Wall Street.”

For critics and advocates of a China investment screening program, the real question is where the policy goes next. Biden administration officials like to use the analogy of the “small yard, high fence,” to describe an approach that places strong controls on a narrow range of companies or technologies.

But if the policy isn’t carefully thought through, said Reva Goujon, a U.S.-China policy specialist at Rhodium Group, “your yard turns into a fence pretty quickly.”

Joseph Menn contributed to this report.

#Biden #order #propose #restrictions #China #technology #investment

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