Overview of the Executive Order
President Joe Biden on Wednesday signed an executive order that will prohibit some new U.S. investment in China in sensitive technologies like computer chips, and require government notification in other tech sectors. The long-awaited order authorizes the U.S. Treasury Secretary to prohibit or restrict U.S. investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems. The administration said the restrictions would apply to "narrow subsets" of the three areas but did not give specifics. The proposal is open for public input.
Targeting Chinese Military Modernization
The order aims to prevent American capital and expertise from aiding China in developing technologies that could support its military modernization and undermine U.S. national security. Targeting private equity, venture capital, joint ventures, and greenfield investments, Biden has declared a national emergency to deal with the threat from countries like China in sensitive technology areas.
China's Response to the Order
China expressed "grave concern" about the order, reserving the right to take measures. Criticizing the impact on normal business operations and international trade, statements from the Chinese Commerce Ministry and foreign ministry expressed dissatisfaction, opposing the U.S.'s investment restrictions on China, and urging the U.S. to uphold market laws and fair competition principles.
Hong Kong's Reaction to the U.S. Restrictions
The Hong Kong government called the U.S. restrictions "unreasonable measures" that "hindered and disrupted normal investment and trade activities." Highlighting the damage to American companies and global economic growth, they called for more stability in international economic and trade relations.
Semiconductors as a Strategic Focus
With a focus on investments in Chinese companies developing chip design and manufacturing tools, the White House detailed its consultation with allies and feedback from the Group of Seven nations. The Senate Democratic Leader hailed this as a strategic step to stop American investment from funding Chinese military advancement.
Future Implications and Potential Loopholes
The regulations, affecting only future investments, could fuel tensions between the world's two largest economies. Despite U.S. officials' statements, Republicans argued that the order was riddled with loopholes and lacked aggressiveness.
Expected Exemptions and Investment Impact
With some exemptions expected, the Treasury detailed the anticipated exceptions, while emphasizing the decline in U.S. investment in Chinese tech. The new measures, to be implemented next year, come after a drastic drop in U.S.-based venture-capital investment in China.
Criticisms and Business Responses
Republican Senator Marco Rubio criticized the plan as "almost laughable," citing numerous loopholes. The Chinese embassy and the Semiconductor Industry Association offered contrasting views on the effects of the restrictions, while a spokesperson from the Center for Strategic and International Studies highlighted the potential impact on U.S. allies and China's reaction.