Introduction
In a significant move, the Biden Administration recently announced its intention to issue an executive order that will require investors to obtain approval before investing in China’s sensitive technology sectors, such as AI, semiconductors, and quantum technology. While the order is expected to take effect in 2024, it is important to note that it comes with certain limitations and nuances, signaling a more measured approach toward regulating investments in China’s tech industry.
China is strongly dissatisfied with and resolutely opposed to the U.S.’s insistence on introducing restrictions on investment in China. This is blatant economic coercion and technological bullying
~Foreign Ministry, China.
Narrow Focus and Countries of Concern
The White House’s executive order primarily focuses on addressing US investments in national security technologies and products within countries of concern. As of now, the list of countries of concern includes China and its special administrative regions, Hong Kong and Macau. The administration’s rationale for targeting these countries stems from their comprehensive, long-term strategies that aim to advance sensitive technologies critical to military, intelligence, surveillance, and cyber capabilities.
Technological Advancements and National Security
The White House asserts that these countries of concern have been blurring the lines between civilian and commercial sectors, as well as military and defense industrial sectors. The rapid advancements in areas like semiconductors and microelectronics, quantum information technologies, and AI capabilities have bolstered their capacity to undertake activities that pose potential threats to US national security.
Exploiting Outbound Investments
The administration has also highlighted concerns about these countries exploiting or having the potential to exploit certain outbound investments made by the United States. This reflects a growing apprehension over technology transfer and intellectual property theft, both of which could significantly impact the US economy and security.
Scope and Limitations of the Executive Order
The details of the executive order are yet to be finalized and will undergo a period of public notice and comment. However, some key aspects of the order have already been outlined. The order will necessitate that US individuals notify the Department of the Treasury of any transactions involving foreign entities controlled by US persons. It’s worth noting that this requirement will only apply to future investments and will not impact existing ones.
The executive order, while significant, is narrower in scope than initial expectations. Notably, it excludes biotechnology and energy sectors from its purview. This targeted approach aims to strike a balance between national security concerns and maintaining economic engagement and growth.
Impact on Investments and Bilateral Relations
China has seen a decline in inward foreign direct investment (FDI) over the past few months, attributed to both COVID-19-related measures and supply chain relocations. Despite this trend, data indicates that US investments in crucial sectors like computers, semiconductors, and software have continued to increase. This suggests that investors are still optimistic about the potential opportunities and returns in these sectors, despite the impending executive order.
Conclusion
The Biden Administration’s forthcoming executive order represents a careful and calculated approach to regulating investments in China’s sensitive technology sectors. By focusing on countries of concern and specific industries, the administration aims to mitigate potential threats to national security while allowing room for economic growth and innovation. As the details of the executive order are refined and public input is sought, it will be interesting to see how it shapes the landscape of US-China relations and technology investments in the coming years.
