Biden signs order to ban certain tech investments in China

NEW YORK/WASHINGTON - United States President Joe Biden on Wednesday signed an executive order that will narrowly prohibit certain US investments in sensitive technology in China and require government notification of funding in other tech sectors.

The long-awaited order authorises the US Treasury Secretary to prohibit or restrict certain US investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems.

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

China said on Thursday it is “gravely concerned” about the order and that it reserves the right to take measures.

The order affects the normal operation and decision-making of enterprises, and undermines the international economic and trade order, a statement from the Chinese Commerce Ministry read.

The ministry also said it hopes the US will respect laws of the market economy and the principle of fair competition, and refrain from “artificially hindering global economic and trade exchanges and cooperation, or set up obstacles for the recovery of the world economy”.

The Chinese Foreign Ministry said the country was “strongly dissatisfied” with and “resolutely opposes the US’ insistence on introducing investment restrictions on China”, having also lodged solemn representations with the US.

China urged the US to fulfil Mr Biden’s promise of no intention to decouple from China or obstruct China’s economic development, the ministry said in a statement.

The proposal targets investments in Chinese firms developing software to design chips and the tools to manufacture them.

The US, Japan and the Netherlands dominate those fields, and the Chinese government has been working to build up home-grown alternatives.

The move could fuel tensions between the world’s two largest economies, although US officials insisted the prohibitions were intended to address “the most acute” national security risks and not to separate the two countries’ highly interdependent economies.

Senate Democratic leader Chuck Schumer praised Mr Biden’s order, saying: “For too long, American money has helped fuel the Chinese military’s rise. Today, the United States is taking a strategic first step to ensure American investment does not go to fund Chinese military advancement.”

He said Congress must enshrine restrictions in law and refine them.

Republicans said the Biden order did not go far enough.

House Foreign Affairs Committee chairman Michael McCaul praised the move to restrict new outbound investments in China, but said “the failure to include existing technology investments as well as sectors like biotechnology and energy is concerning”.

The order is aimed at preventing American capital and expertise from helping develop technologies that could support China’s military modernisation and undermine US national security.

It is focused on private equity, venture capital, joint venture and greenfield investments.

Most investments captured by the order will require that the government be notified about them.

Some transactions will be prohibited.

The US Treasury said it anticipates exempting “certain transactions, including potentially those in publicly traded instruments and intracompany transfers from US parents to subsidiaries”.

A spokesman for the Chinese Embassy in Washington did not immediately respond to a request for comment on Wednesday, but the embassy said last Friday that the US “habitually politicises technology and trade issues and uses them as a tool and weapon in the name of national security”.

Republican Senator Marco Rubio said the Biden administration’s “narrowly tailored proposal is almost laughable”.

“It is riddled with loopholes, explicitly ignores the dual-use nature of important technologies, and fails to include industries China’s government deems critical,” he said.

Democratic Senator Bob Casey said Mr Biden’s order “acknowledges the urgency of the issue and will allow the US to reduce some of the risks we face from bad actors like China”.

The regulations will affect only future investments, not existing ones, an administration official told Reuters.

The Biden administration said it engaged US allies and partners as it developed the restrictions, “and will continue coordinating closely with them to advance these goals”.

It added that the executive order reflects discussions with the Group of Seven countries.

It is expected to be implemented in 2023, a person briefed on the order said, after multiple rounds of public comment, including an initial 45-day comment period.

Regulators plan to issue an advance notice of proposed rulemaking to further define the scope of the programme and a comment period to solicit public feedback before making a formal proposal.

Sources previously told Reuters that investments in semiconductors that will be restricted are expected to track export control rules for China issued by the US Department of Commerce in October.

Ms Emily Benson of the Centre for Strategic and International Studies (CSIS), a bipartisan policy research organisation, said she expects investments in artificial intelligence to be prohibited to military users and uses, and that other investments in the sector will require only notification to the government.

Ms Benson said the burden will fall on the administration to determine what AI falls into the military category.

“They will have to draw a line of what constitutes a military application of AI, and to define AI,” said Ms Benson, director of CSIS’ project on trade and technology.

The regulations concerning AI are still in development, the person briefed on the order said.

The person said the same was also true for quantum computing, but that it was expected to prohibit certain sensors and other things related to the technology.

The person added that there could be potential exemptions related to universities and research. REUTERS