The long-awaited order authorizes the US Secretary of the Treasury to prohibit or restrict US investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems.
The administration said the restrictions would apply to “narrow subsets” of the three areas, but did not elaborate. The proposal is open for public comment.
The order aims to prevent US capital and expertise from helping China develop technologies that could support its military modernization and undermine US national security. The measure targets private equity, venture capital, joint ventures and start-up investments.
Biden, a Democrat, said in a letter to Congress that he was declaring a national emergency to address the threat of advancement by countries like China “in sensitive technologies and products critical to military, intelligence, surveillance or cyber-activation”.
China said Thursday it was “seriously concerned” about the order and reserved the right to take action.
The order affects the normal operation and decision-making of enterprises, and undermines the international economic and trade order, read a statement from China’s Ministry of Commerce.
The ministry also said it hopes the United States will abide by the laws of market economy and the principle of fair competition, and refrain “from artificially impeding global economic and commercial exchanges and cooperation, or to put in place obstacles to the recovery of the global economy”.
Semiconductors a priority
The proposal focuses on investments in Chinese companies developing software to design computer chips and the tools to manufacture them. The United States, Japan, and the Netherlands dominate these areas, and the Chinese government has worked to create local alternatives.
The White House said Biden consulted with allies on the plan and incorporated comments from Group of Seven countries.
“For too long, American money has helped fuel the growing strength of the Chinese military,” said Senate Democratic Leader Chuck Schumer. “Today, the United States is taking the first strategic step to ensure that American investments are not used to fund Chinese military advancement.”
The regulations will only affect future investments, not existing ones, the Treasury said, but it could request disclosure of past transactions.
The move could fuel tensions between the world’s two largest economies. The Chinese embassy in Washington said it was “very disappointed” by the measure.
U.S. officials insisted the bans were aimed at addressing “the most acute” national security risks and not at separating the two countries’ highly interdependent economies.
Republicans said the order was riddled with loopholes, such as applying only to future investments, and was not aggressive enough.
Some exceptions expected
The order will prohibit certain transactions and require investors to notify the government of their plans on others.
The Treasury said it plans to exempt “certain transactions, potentially including those involving publicly traded instruments and intra-corporate transfers from U.S. parent companies to subsidiaries.”
China’s tech industry, once a magnet for US venture capital, has already seen a drastic drop in US investment amid heightened geopolitical tensions.
Last year, total US venture capital investment in China fell to $9.7 billion from $32.9 billion in 2021, according to PitchBook data. So far this year, USVC investors have invested just $1.2 billion in Chinese tech startups.
The measure is expected to be implemented next year, a person briefed on the order said, after several rounds of public comment, including an initial 45-day comment period.
The Republican sees many flaws
Republican Senator Marco Rubio said the Biden administration’s plan was “almost laughable.”
“It is riddled with loopholes, explicitly ignores the dual-use nature of important technologies, and does not include industries that the Chinese government deems essential,” he said.
A spokesman for the Chinese embassy in Washington said the White House had ignored China’s “repeated expression of deep concern” about the plan.
The spokesperson said more than 70,000 American companies do business in China. The restrictions will harm Chinese and American businesses, interfere with normal cooperation and reduce investor confidence in the United States, he said.
The Semiconductor Industry Association said it hoped the order would allow “American chip companies to compete on a level playing field and gain access to major global markets, including China.”
Emily Benson of the Center for Strategic and International Studies (CSIS), a bipartisan policy research organization, said the key questions are how the plan affects US allies and how China is responding.
