White House bans US tech investment in China

Biden’s administration will restrict US investments in Chinese quantum computing, advanced chip and artificial intelligence sectors. It is stepping up efforts to prevent China from gaining access to American technology and capital.

The new executive order announced by President Joe Biden Wednesday will be in force from next year, and companies will have to inform the government about other investments made in the three Chinese sector.

The actions will have a major impact on private equity firms, venture capitalists and US investors who are involved in joint ventures between Chinese groups.

A senior US official stated that it would create a programme “very targeted”, which would focus on three sectors the administration has marked out in other related technology measures directed at China.

The official stated, “We would like to give clear guidance as to what is prohibited and what is separately notified.”

Biden stated that technological progress in these sectors poses “significant national security risk” because computers can advance in a way that could help develop sophisticated weapons or break the cryptographic codes used to protect data by spy agencies.

The order is part of a series designed to limit Chinese technology access in what US National Security Advisor Jake Sullivan called a “small yard, high fence” strategy.

Beijing countered by saying that US actions were designed to limit China’s technological progress. China’s Commerce Ministry expressed “serious concerns” on Thursday about the order. It said it “deviated from the principles that the US has consistently advocated of fair competition and market economy” and Beijing had the right to take countermeasures.

The order, according to a second US official, would “protect American security in an extremely targeted manner” while still maintaining the long-standing commitment of open investment.

This move could undermine efforts to revive top-level engagement, which stalled following a suspected spy ballon flying over the US in early this year. Biden and President Xi Jinping decided at the G20 meeting in Bali, in October, to stabilize relations and ensure that competition does not lead to conflict.

The US and its allies have been trying to reach as much agreement as possible on the issue of restricting investment in China. The effort has been difficult because other countries worry that the US move is too extreme and in some cases because of domestic legal restrictions.

Officials in the US have expressed their hope that other countries will follow Washington’s lead. Even close allies seem to be hesitant. Japanese officials privately stated that Tokyo has no intention to revise the legislation governing outbound China investment.

Officials from the US said that the UK, Germany and the European Commission had all expressed an interest in developing similar regimes for outbound investments.

Republicans criticized the order because it was not broader. Nikki Haley said that it was not even a “half measure” according to the GOP presidential candidate.

She said, “To stop financing China’s military we must stop all US investments in China’s crucial technology and military firms, period.”

The first official stated that the administration wanted the focus to be on sectors most relevant to the slowdown of China’s military and intelligence capabilities.

A second US official stated that the administration is targeting private equity and Venture Capital because they can introduce Chinese groups with other technology companies and specialists. The official explained that the administration was focusing on the intangibles. “China doesn’t really need our money.”

Emily Kilcrease, technology expert at CNAS, said that it was “a good first step in de-risking”, but “would leave many camps unsatisfied”. She said that some people would criticise the fact that it was not broader. However, the time needed to develop a final rule based on the order allowed for change.

Kilcrease stated that there will be “continued efforts” to lobby against strict prohibitions, and to reduce the scope of technology covered.