US President Joe Biden has issued an executive order aimed at restricting certain American investments in China’s high-tech sectors. The rules, which are expected to be implemented next year, target areas such as semiconductors and artificial intelligence. This move could potentially strain the already tense relations between the two largest economies in the world.
The executive order, which was announced in a letter to Congressional leaders, aims to limit access to key technologies and prevent certain US investments from accelerating the development of sensitive technologies and products in countries that could counter US and allied capabilities.
Under the program, new private equity, venture capital, and joint ventures investments in advanced semiconductors and some quantum information technologies in China will be prohibited. The Treasury Department is considering a notification requirement for US investments in Chinese entities involved in less advanced semiconductors and certain types of artificial intelligence.
The Treasury Department argues that China could exploit US investments to enhance its military modernization capabilities by gaining access to sensitive technologies critical to its development. However, exceptions might be made for certain US investments into publicly traded securities and transfers from US parents to subsidiaries.
In response to Biden’s executive order, China’s Ministry of Commerce criticized the move, stating that it seriously deviates from the market economy and fair competition principles that the US has always promoted. They believe that this order damages the international trade order and disrupts the security of global industrial and supply chains.
While the direct impact in terms of the volume of dollars or number of transactions covered by the restrictions may be small, experts suggest that it could have a chilling effect on future bilateral investments over time. Companies might reconsider the nature of their investments due to the restrictions, potentially impacting investment between the US and China.
US officials have been engaging with Chinese counterparts in recent months to discuss the possibility of implementing such restrictions. Treasury Secretary Janet Yellen reassured that any new moves would be implemented transparently and would focus narrowly on sectors where specific national security concerns exist. Efforts are also being made to align policy approaches with key allies and partners.
It remains to be seen how these restrictions will shape the bilateral relationship between the US and China. While the goal is to safeguard national security interests, maintaining open channels of communication and cooperation will be crucial to avoid a complete breakdown in relations. As both countries navigate complex geopolitical dynamics, finding a balance between security concerns and economic cooperation will be a significant challenge.
