Biden’s Executive Order Restricts US Investments in Chinese Tech

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Biden’s Executive Order Restricts US Investments in Chinese Tech

On August 9, 2023, President Biden issued an Executive Order aimed at restricting certain U.S. investments in Chinese companies that produce technologies and products raising US national security concerns. The Treasury Department also issued an Advanced Notice of Proposed Rulemaking (ANPR) to initiate the process of implementing regulations imposing the new investment restrictions. This Executive Order represents a significant change in US sanctions applicable to overseas investment by US individuals and establishes a framework that may expand to cover additional categories of investment in the future. However, there are still many unanswered questions about the scope and implementation of these new restrictions, which will be addressed during the forthcoming rulemaking process.

The Executive Order declares a national emergency in response to the advancement of sensitive technologies and products critical for military, intelligence, surveillance, or cyber-enabled capabilities by countries of concern, specifically the People’s Republic of China (PRC). It directs the Treasury Department, under the International Emergency Economic Powers Act, to develop and implement targeted investment restrictions to address this emergency. The Order alleges that the PRC is engaged in comprehensive, long-term strategies that support advancements in technologies critical to military and intelligence activities.

Under the Executive Order, the Secretary of the Treasury is instructed to issue regulations that prohibit certain transactions between US persons and covered foreign persons involving technologies and products posing a particularly acute national security threat. Additionally, US persons will be required to notify the Treasury Department of certain other transactions that may contribute to a threat to national security. The restrictions are designed to target investments that may provide tangible benefits, along with capital, to covered foreign persons, including private equity, venture capital, joint venture, and greenfield investments.

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Senior US officials have indicated that the US has worked closely with allies and partners in developing these new restrictions and welcomes input from international partners on their implementation. The proposed regulations by the Treasury Department will generally prohibit or require notification for new investments by US entities into certain Chinese entities, as well as entities owned by Chinese persons, involved in semiconductor and microelectronic technologies, quantum information technologies, and artificial intelligence technologies. The forthcoming regulations will largely depend on the public comment process, but the Advanced Notice of Proposed Rulemaking provides initial guidance on their likely structure in several areas.

The Treasury Department is likely to adopt the Executive Order’s definition of United States person, which includes US citizens, lawful permanent residents, entities organized under US laws, and persons within the United States. The restrictions may also extend to entities controlled by US persons, such as overseas subsidiaries of US companies. The term covered transaction will apply to both prohibited and notifiable transactions under the Executive Order. Additionally, the term covered foreign person and person of a country of concern will encompass entities located outside of China that are majority-owned by Chinese persons or entities.

The ANPR outlines two types of restrictions on covered investments: prohibitions and notifications. However, many details about the final shape of the restrictions remain uncertain. Questions about the application and liability for non-compliance will be clarified once the Treasury Department releases the final regulations. The Biden Administration considers the Executive Order and forthcoming regulations to be compatible with the Outbound Investment Transparency Act, which was included in the version of the National Defense Authorization Act for Fiscal Year 2024 passed by the US Senate in July 2023. Efforts will be made to align the approach of the Executive and Legislative Branches in the coming weeks and months.

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While the rules established by the Executive Order will initially apply only to investments in Chinese-owned entities or entities in China, the broad language used suggests the possibility of expanding the Order’s application to include restrictions on investments in other countries or territories in the future.

As industry responses to the detailed questions posed in the ANPR are received by September 28, 2023, the Treasury Department will gain insights into the potential scope and impact of the upcoming restrictions. The final form of the regulations will determine the level of risk and compliance burdens for companies. For now, the focus remains on the Chinese tech sector, but future developments could extend the restrictions to other regions as well. The coordination with international partners ensures a unified front in addressing national security concerns related to sensitive technologies and products. The Treasury Department’s forthcoming rulemaking process will provide further clarity on the implementation of the Executive Order and the extent of its impact on US investments in Chinese tech.

Frequently Asked Questions (FAQs) Related to the Above News

What is the purpose of President Biden's Executive Order on restricting US investments in Chinese tech?

The Executive Order aims to address US national security concerns by restricting certain US investments in Chinese companies that produce technologies and products critical for military, intelligence, surveillance, or cyber-enabled capabilities.

Which department is responsible for implementing the new investment restrictions?

The Treasury Department is responsible for developing and implementing the targeted investment restrictions outlined in the Executive Order.

How will these investment restrictions be imposed?

The Secretary of the Treasury will issue regulations that prohibit certain transactions between US persons and covered foreign persons involving technologies and products posing a national security threat. US persons will also be required to notify the Treasury Department of certain transactions that may contribute to a threat to national security.

What types of investments will be targeted by these restrictions?

The restrictions are designed to target investments that may provide tangible benefits, along with capital, to covered foreign persons, including private equity, venture capital, joint venture, and greenfield investments.

Will these investment restrictions apply only to Chinese-owned entities?

Initially, the restrictions will apply to investments in Chinese-owned entities or entities in China. However, the broad language used in the Executive Order suggests the possibility of expanding its application to include restrictions on investments in other countries or territories in the future.

How are international partners involved in the development of these restrictions?

The US has worked closely with allies and partners in developing these new restrictions and welcomes input from international partners on their implementation. The coordination with international partners ensures a unified front in addressing national security concerns related to sensitive technologies and products.

When will the final regulations be released?

The final regulations will be released by the Treasury Department after the public comment process, which concludes on September 28, 2023.

How will non-compliance with the investment restrictions be handled?

The details regarding liability for non-compliance will be clarified in the final regulations released by the Treasury Department.

Will there be alignment between the Executive and Legislative Branches regarding these restrictions?

Efforts will be made to align the approach of the Executive and Legislative Branches in the coming weeks and months, as the Biden Administration considers the Executive Order and forthcoming regulations to be compatible with the Outbound Investment Transparency Act.

How will the impact of these restrictions be assessed?

The Treasury Department will gain insights into the potential scope and impact of the restrictions based on industry responses received by September 28, 2023. The final form of the regulations will determine the level of risk and compliance burdens for companies.

Where can I find further clarity on the implementation of the Executive Order?

The forthcoming rulemaking process by the Treasury Department will provide further clarity on the implementation of the Executive Order and the extent of its impact on US investments in Chinese tech.

Please note that the FAQs provided on this page are based on the news article published. While we strive to provide accurate and up-to-date information, it is always recommended to consult relevant authorities or professionals before making any decisions or taking action based on the FAQs or the news article.

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