10-8-2023 (NEW YORK) President Joe Biden signed an executive order on Wednesday imposing restrictions on certain U.S. investments in China, targeting sensitive technologies such as computer chips and artificial intelligence systems. The move aims to prevent American capital and expertise from supporting China’s military modernization efforts and undermining U.S. national security.
The long-awaited order grants the U.S. Treasury secretary the authority to prohibit or restrict investments in Chinese entities operating in three key sectors: semiconductors and microelectronics, quantum information technologies, and specific artificial intelligence systems. While the order does not provide detailed specifics on the subsets of these areas that will be affected, it is open for public input.
The order specifically targets private equity, venture capital, joint ventures, and greenfield investments, with the goal of curbing China’s access to advanced technologies that could bolster its military capabilities. President Biden, a Democrat, declared a national emergency in his letter to Congress, emphasizing the need to address the threat posed by countries like China in sensitive technological fields crucial to military, intelligence, surveillance, and cyber-enabled capabilities.
China expressed grave concern about the order, stating that it reserves the right to take corresponding measures. The Chinese Commerce Ministry issued a statement condemning the order, asserting that it disrupts the normal operation and decision-making of enterprises and undermines the international economic and trade order. The ministry called on the U.S. to respect the laws of the market economy, fair competition, and avoid hindering global economic and trade exchanges.
The executive order primarily focuses on investments in Chinese companies involved in developing software for designing computer chips and tools for their manufacturing. Currently, the United States, Japan, and the Netherlands dominate these fields, while China has been striving to establish domestic alternatives. The White House stated that President Biden consulted with allies and incorporated feedback from the Group of Seven nations in formulating the order.
Senate Democratic Leader Chuck Schumer applauded the order, highlighting the role that American money has played in fueling China’s military advancements. He stated that the United States is taking a strategic step to ensure that American investment does not contribute to the funding of Chinese military development.
The Treasury clarified that the regulations will only affect future investments and will not apply retroactively to existing ones, although it may request disclosure of prior transactions. The order is expected to generate tensions between the world’s two largest economies. The Chinese embassy in Washington expressed disappointment with the measure, while U.S. officials emphasized that the restrictions aim to address acute national security risks rather than severing the highly interdependent economic ties between the two countries.
Certain exemptions are anticipated under the order, with the Treasury stating that it may exempt specific transactions, including publicly traded instruments and intra-company transfers from U.S. parents to subsidiaries. Nonetheless, China’s tech industry has already experienced a significant decline in U.S. venture capital investment due to escalating geopolitical tensions. Last year, U.S.-based venture capital investment in China dropped to $9.7 billion from $32.9 billion in 2021, according to PitchBook data.
The implementation of the executive order is expected to occur next year following multiple rounds of public comment, including an initial 45-day comment period. However, Republican Senator Marco Rubio criticized the plan, deeming it riddled with loopholes and insufficiently addressing the importance of technologies with dual-use capabilities and industries deemed critical by the Chinese government.
The order’s potential impact on U.S. allies and China’s response are key areas of interest. Emily Benson of the Center for Strategic and International Studies (CSIS), a bipartisan policy research organization, highlighted these questions as crucial factors in evaluating the plan.
