President Biden Signs Executive Order Banning US Investments in Sensitive China

US President Joe Biden signed an executive order that would ban some of the United States' new investments in China (photo: Twitter @potus)

JAKARTA - US President Joe Biden on Wednesday August 9 signed an executive order that will bar some new United States investments in China in sensitive technology such as computer chips and will require government notification in other technology sectors.

The long-awaited order authorizes the US Secretary of the Treasury to prohibit or limit US investment in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technology, and certain artificial intelligence systems.

The administration said the restrictions would apply to a "narrow subset" of the three areas but gave no further details. This proposal is open to public input.

The order aims to prevent American capital and expertise from helping China develop technology that can support military modernization and undermine US national security. This move is aimed at private equity capital, venture capital, joint ventures, and greenfield investments.

Biden, a Democrat, said in a letter to Congress that he was declaring a national emergency to deal with the threat of advances by countries like China "in sensitive technologies and products critical to their military, intelligence, surveillance, or cyber-enabled capabilities."

China said Thursday it was "deeply concerned" about the order and that it reserved the right to take steps.

The order affects the company's normal operations and decision-making, and undermines the international economic and trade order, a statement from China's Ministry of Commerce reads.

The ministry also said it hopes the US will respect the laws of the market economy and the principle of fair competition, and refrain from "artificially obstructing global economic and trade exchanges and cooperation, or creating obstacles to the recovery of the world economy."

This proposal focuses on investing in Chinese companies that develop software to design computer chips and tools to manufacture them. The US, Japan and the Netherlands dominate these areas, and the Chinese government has been working to build domestic alternatives.

The White House said that Biden is consulting with allies on the plan and incorporating feedback from G7 nations.

"For too long, American money has helped fuel China's military rise," said Senate Democrat Chuck Schumer. "Today the United States took a strategic first step to ensure American investments are not used to fund China's military advances."

The regulations will only affect future investments, not existing ones, the Ministry of Finance said, but may require disclosure of past transactions.

This move could exacerbate tensions between the world's two largest economies. The Chinese embassy in Washington said it was "deeply disappointed" by the move.

US officials insist the ban is intended to address the "most acute" national security risks and not to decouple the two countries' highly interdependent economies.

Republicans say the order is full of loopholes, such as only applying to future investments, and not aggressive enough.

The order would bar some deals and require investors to notify the government of their plans for other deals.

The Treasury said it anticipates exempting "certain transactions, including potential publicly traded and intercompany transfers from the US parent company to its subsidiaries."

China's tech industry, once a magnet for US venture capital, has seen a sharp decline in US investment due to rising geopolitical tensions.

Last year, total US-based venture capital investment in China slumped to US$9.7 billion ($32.9 billion) in 2021, according to PitchBook data. So far this year, US venture capital investors have allocated just $1.2 billion to Chinese tech startups.

The measure is expected to be implemented next year, a person briefed on the order said, after several rounds of public comments, including an initial 45-day comment period.

Republican Senator Marco Rubio said the Biden administration's plans were "almost ridiculous." "It is full of loopholes, explicitly violates the nature of an important technology, and fails to include industries that the Chinese government deems important," he said.

A spokesman for the Chinese embassy in Washington said the White House had not heard of China's "expressions of deep concern" about the plans.

The spokesman said more than 70,000 US companies do business in China. These restrictions will hurt Chinese and American businesses, disrupt normal cooperation, and reduce investor confidence in the US, he said.

The Semiconductor Industry Association said it hoped the order would allow "US chip companies to compete on fair terms and access key global markets, including China."

Emily Benson of CSIS, a bipartisan policy research organization, said the key question is how this plan will affect US allies and how China will respond.