On Wednesday (August 9), US President Joe Biden signed an executive order prohibiting American investments in critical technologies such as computer chips in China and requiring government notification in other tech sectors. On Thursday, the Chinese government expressed severe worry about the decision and stated that it reserves the right to take action.
President Biden declared a national emergency in a letter to Congress, citing the possibility of advances by countries such as China “in sensitive technologies and products critical to the military, intelligence, surveillance, or cyber-enabled capabilities.”
The executive order is set to go into effect next year
“The Order directs the Secretary of the Treasury to establish a program to prohibit or require notification of certain types of outbound investments by United States persons into certain entities located in or subject to the jurisdiction of a country of concern, and certain other entities owned by persons of a country of concern, involved in specific categories of advanced technologies and products,” an official statement from the Treasury said on Wednesday.
“In an Annex to the Order, the President identified the People’s Republic of China, along with the Special Administrative Regions of Hong Kong and Macau, as a country of concern,” the statement added.
What is the purpose of this directive?
The executive order empowers the US Treasury Secretary to prevent or limit American investment in three areas: semiconductors and microelectronics, quantum information technology, and some artificial intelligence (AI) systems. The Biden administration stated that the restrictions would apply to “narrow subsets” of the three categories, but provided no further details.
“Among other things, Treasury seeks input on the sub-sets of national security technologies and products related to semiconductors, quantum information technology, and artificial intelligence systems,” another statement from the Treasury read.
The statement said that the US benefits from an open investment climate, and the new measure would not change that. “It is narrowly targeted at investments in highly sensitive technologies and products for the purposes of protecting US national security,” it added.
The directive seeks to restrict American resources and expertise from assisting China in the development of technology that could aid in its military modernization while undermining US national security. The metric is designed to track private equity, venture capital, joint ventures, and greenfield investments.
“This narrowly targeted action will complement our existing export control and inbound investment screening tools, and protect our national security while maintaining our longstanding commitment to open investment,” the statement also said.
Regulations will only have an impact on future investments
According to the White House, Biden discussed the idea with allies and incorporated feedback from the Group of Seven (G7) governments. “For too long, American money has helped fuel the Chinese military’s rise,” Senate Democratic Leader Chuck Schumer said on Wednesday. Today, the US takes a strategic first step to assure that American investment does not support Chinese military growth.”
The US Treasury emphasized that the laws would only affect prospective investments, not existing ones. Officials stressed that the bans were intended to handle the most serious national security threats, not to divide the two countries’ extremely independent economies.
The Republican Party, on the other hand, said that the executive order was riddled with loopholes and was insufficiently aggressive.
Exemptions are expected
According to the US Treasury, the exemption will apply to “certain transactions, including potentially those in publicly traded instruments and intracompany transfers from US parents to subsidiaries.”
“The Treasury welcomes comments and perspectives from a broad range of stakeholders on all aspects of how the Secretary should implement this new program.” Treasury will consider this feedback as it produces draft regulations, including “refining the definitions of key terms, establishing notification requirements, and establishing the penalty and enforcement processes for violations,” according to the statement released on Wednesday.
What has China’s reaction been to the presidential order?
According to China’s commerce ministry, the presidential order interfered with routine business operations and decision-making and undermined the international economic and trade order. The ministry expressed confidence that Washington would respect market economy regulations and the principle of fair competition, and refrain from “artificially hindering global economic and trade exchanges and cooperation, or setting up obstacles for the recovery of the world economy”.
Beijing is “strongly dissatisfied” with and “resolutely” opposes Washington’s stance on imposing investment restrictions on China, according to the foreign ministry, which has also submitted solemn representations to the US.
China encouraged the US to keep Biden’s vow not to decouple from China or block China’s economic progress, according to the ministry.
Meanwhile, a Chinese embassy official told Reuters on Thursday that the White House had ignored “China’s repeated expression of deep concerns” about the plan.
The spokesman stated that the limitations would harm both Chinese and American firms, interfere with regular cooperation, and weaken investor confidence in the US, citing the fact that over 70,000 American companies do business in China.