Biden Executive Order Restricts US Tech Investments in China Over National Security Concerns

New directive targets semiconductors, quantum tech, and AI sectors, fueling tensions between two global powers.

President Joe Biden has taken a significant step to address national security concerns by signing an executive order that imposes targeted restrictions on certain US investments in sensitive technology sectors in China. The order, set to take effect next year, focuses on semiconductors, microelectronics, quantum information technologies, and specific artificial intelligence systems.

The directive, which follows prolonged anticipation, empowers the US Treasury Secretary to limit or prohibit certain investments in Chinese entities operating within these high-tech domains. In a letter to Congress, President Biden justified the move as a response to the growing threat posed by countries such as China, particularly in areas critical to military, intelligence, surveillance, and cyber capabilities.

Of particular focus are investments in Chinese companies engaged in chip design software and chip manufacturing tools, areas predominantly dominated by the US, Japan, and the Netherlands. This move is aimed at curbing American contributions that could inadvertently bolster China's military advancement.

The executive order's scope covers private equity, venture capital, joint ventures, and greenfield investments. While most investments will require government notification, some transactions will be outright prohibited. The Treasury Department is considering exemptions for certain transactions, including those involving publicly traded instruments and intra-company transfers from US parents to subsidiaries.

The order's impending implementation has raised concerns about potential escalation in tensions between the world's two largest economies. However, US officials have emphasized that the restrictions aim to mitigate the most pressing national security risks and not to completely decouple their deeply intertwined economies.

Senate Democratic leader Chuck Schumer welcomed the order, underscoring the need to prevent American investments from inadvertently supporting the Chinese military. He called for further legislative measures to refine and solidify the restrictions.

Critics, particularly from the Republican side, argue that the executive order does not go far enough. House Foreign Affairs Committee Chairman Michael McCaul expressed concern over the omission of existing technology investments, biotechnology, and energy sectors from the restrictions.

China has voiced its disappointment over the order, with the Chinese embassy in Washington expressing concern about its impact on Chinese and American companies and investors. The embassy spokesperson, Liu Pengyu, assured that China would closely monitor the situation and protect its interests.

Regulators plan to engage in multiple rounds of public comment before formalizing the order's implementation. This includes an initial 45-day comment period and the issuance of an advance notice of proposed rule-making to define the program's scope more clearly.

While specific regulations for artificial intelligence and quantum technology are still in development, experts anticipate that AI investments intended for military purposes will be prohibited, while other AI investments will require government notification. The challenge of delineating what constitutes military AI applications lies ahead.

This executive order marks a pivotal moment in the ongoing dynamic between the United States and China, influencing the trajectory of their technological competition and geopolitical relations.