President Joe Biden signed an executive order on Wednesday, effectively banning specific new U.S. investments in China, notably in sensitive areas of technology including computer chips. It also necessitates government notification for other sectors in technology.
This highly anticipated order permits the U.S. Treasury secretary to either prohibit or confine U.S. investments in Chinese corporations across three sectors, namely semiconductors and microelectronics, quantum data technology, and certain AI systems.
The administration clarified that these restrictions would pertain to “narrow subsets” within these three categories, though they did not provide specific details. The proposal is currently open for feedback from the public.
As quoted by Reuters, the aim of this order is to prevent U.S. capital and expertise from helping China advance technologies that might assist its military modernization efforts and compromise U.S. national security. This initiative particularly focuses on private equity, venture capital, joint ventures, and greenfield investments.
Biden, representing the Democratic party, has notified Congress by written communication that he is enacting a national emergency due to the potential risks associated with advancements by nations such as China in the realm of sensitive technology and products. These areas are deemed critical to the armed forces, intelligence agencies, surveillance systems, and cyber activity.
In response, China expressed grave concern on Thursday regarding Biden’s decision, warning that it maintains the right to react accordingly.
The Chinese Commerce Ministry released a statement asserting that this declaration disrupts the regular functions of corporations and adversely affects the established international economic and trade order.
The Ministry additionally expressed a desire for the U.S. to preserve respect for the guiding principles of a market economy and fair competition. It urged the U.S. to avoid creating artificial barriers to global commerce and cooperation or obstacles affecting the world’s economic recovery.
The ministry stated, “China strongly encourages the U.S. to uphold President Biden’s commitment of not planning to disconnect from China or hinder its economic growth.”
Prioritizing Semiconductor Investments
The proposed plan specifically targets investment in Chinese firms engaged in the creation of computer chip design software and its production hardware. These sectors are currently dominated by the U.S., Japan, and the Netherlands, and efforts are underway by the Chinese government to cultivate domestic competitors.
According to the White House, President Biden conferred with allies while formulating this plan and integrated input from the Group of Seven nations.
Senate Democratic Leader Chuck Schumer observed, “The United States, for far too long, has inadvertently supported the growth of the Chinese military through American investments.” He added, “Today marks a significant initial move to ensure U.S. investments do not contribute to the Chinese military’s progression.”
The Treasury has clarified that these rules will apply solely to future investments and will not disturb existing ones. However, it may require disclosure of past transactions.
The recent action may potentially escalate the friction between the globe’s two top economies. The Chinese embassy in Washington expressed “extreme disappointment” regarding this regulation.
American authorities maintained their stance that the restrictions were enforced to mitigate significant national security threats without distorting the economy’s fundamental reliance between the two nations.
However, Republicans voiced their objections, indicating that the directive was full of exceptions, primarily because it only affected future investments, and argued that the course of action was not sufficiently assertive.
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