US President Joe Biden on Wednesday issued an executive order aimed at restricting certain US investments in sensitive high-tech areas in China — a move Beijing criticized as being “anti-globalization.”
The long-anticipated rules, expected to be implemented next year, target sectors such as semiconductors and artificial intelligence, as Washington seeks to limit access to key technologies.
“The commitment of the United States to open investment is a cornerstone of our economic policy and provides the United States with substantial benefits,” Biden said in a letter to Congressional leaders announcing the executive order. “However, certain United States investments may accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter United States and allied capabilities.”
Photo: AFP
The program is set to prohibit new private equity, venture capital and joint venture investments in advanced semiconductors and some quantum information technologies in China, the US Department of the Treasury said.
“The outbound investment program will fill a critical gap in the United States’ national security toolkit,” a senior US government official said on condition of anonymity. “What we’re talking about is a narrow and thoughtful approach as we seek to prevent [China] from obtaining and using the most advanced technologies to promote military modernization and undermining US national security.”
The treasury department is considering a notification requirement for US investments in Chinese entities involved in less advanced semiconductors and activities relating to certain types of artificial intelligence.
China could exploit US investments to further its ability to produce sensitive technologies critical to military modernization, it said.
However, it anticipates creating an exception for certain US investments into publicly traded securities and transfers from US parents to subsidiaries.
The Chinese Ministry of Foreign Affairs blasted the move as an attempt to “engage in anti-globalization and desinicization,” warning that China would “resolutely safeguard its own rights and interests.”
“Beijing is strongly dissatisfied and firmly opposes the United States’ insistence on introducing restrictions on investment in China, and has lodged solemn representations with the United States,” the ministry said in a statement.
While the volume of US dollars or numbers of transactions covered by a ban or notification regime are likely to be quite small, it does not necessarily mean the overall impact would be limited, said Emily Benson, director of the project on trade and technology at the Center for Strategic and International Studies.
“It’s possible that while they’re not directly subject to bans, companies will rethink the nature of their investments and that could have a chilling effect on bilateral investment over time,” Benson said.
Nicholas Lardy, nonresident senior fellow at the Peterson Institute for International Economics, said that “the share of investment in China that’s been financed by foreign capital in recent years is about 1 to 2 percent.”
“If you want to have an impact, you’ve got to get other countries that are making these kinds of investments in China to have a similar regime,” he said.
A senior US government official said that key allies and partners have recognized the importance of this issue and “some are seeking to align” their policy approaches.
The UK yesterday said that it was weighing how to respond to Biden’s executive order as it continued to assess potential national security risks, while the European Commission said it would analyze the US move and was in close contact with the Biden administration.
Additional reporting by Reuters
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