Biden Orders New Restrictions on US Investment in Chinese High-Tech Companies
President Joe Biden has issued an executive order directing his administration to implement new restrictions on U.S. investment in high-tech Chinese companies. The move aims to prevent the transfer of critical knowledge and expertise that could potentially aid China in surpassing the United States in advanced technologies. The order will establish a screening process that may limit the ability of U.S. private equity and venture capital firms to invest in Chinese companies focused on cutting-edge semiconductors, artificial intelligence, and quantum computing.
The Treasury Department will seek public input on the scope of these restrictions for the next 45 days. They are considering exempting certain passive investments in publicly traded securities, index funds, and exchange-traded funds from the new rules. The goal is to strike a balance between addressing national security concerns and maintaining a mutually beneficial economic relationship with China.
This executive order comes amid growing bipartisan consensus that China is leveraging American capital and expertise to surpass the U.S. both militarily and economically. The U.S. already has export controls in place to prevent the sale of sensitive technologies to China. The Biden administration believes it is possible to achieve a long-term economic relationship with China that supports growth and innovation on both sides, without seeking to decouple from China.
The White House consulted with various stakeholders, including Chinese officials, when crafting the order. However, anti-China sentiment is on the rise in Congress and the public, with Gallup reporting a record low favorability rating towards China. Congress is also considering legislation targeting China, such as the recently passed amendment requiring U.S. investors to notify the Treasury Department when investing in sensitive sectors of Chinese companies.
Henrietta Treyz, director of macro policy research at Veda Partners, believes that although this order may not be well-received in Beijing, it is a watered-down version of what could have been. The implemented restrictions are not expected to take effect until the second half of next year and will not apply retroactively to existing investments.
Equity-market investors are speculating about the potential impact on chip companies like Nvidia, Advanced Micro Devices, and Intel following reports last month regarding expanded bans on exports of sensitive technologies like semiconductors. However, the real intensity is expected to come later this month when the Commerce Department releases their updated export control restrictions on semiconductors.
In conclusion, President Biden’s executive order sets the stage for new restrictions on U.S. investment in Chinese high-tech companies, particularly those involved in advanced technologies with military applications. The measure aims to prevent the transfer of critical knowledge to China and maintain a balance between national security concerns and economic cooperation. The order is part of a broader effort to address U.S.-China competition and protect American interests, while still recognizing the importance of the economic relationship between the two nations.
