On Wednesday, US President Joe Biden issued an executive order restricting US investments in China’s technological industry.
Multiple US officials briefed reporters on the directive before of its public publication stated it is tightly crafted to restrict US corporations from sponsoring investment in Chinese enterprises developing sophisticated technologies that are important to national security.
This includes “technologies that are critical to the next generation of military innovation,” according to one official, who spoke to reporters on the condition of anonymity because the directive had not yet been announced.
It will specifically bar US investment in Chinese companies developing semiconductors and microelectronics, quantum information technology, and some artificial intelligence systems.
The regulation also compels American enterprises to inform the Treasury Department of certain additional transactions with Chinese firms involving other technology and goods that might jeopardise US national security.
“As part of a comprehensive, long-term strategy to advance the development of sensitive technologies and products, the PRC is exploiting, or has the potential to exploit, U.S. investments to further its ability to produce a narrow set of sensitive technologies critical to military modernization,” the Treasury Department said in a statement.
It was referring to China using its formal abbreviation.
“Such US investments are frequently accompanied by certain intangible benefits that help companies succeed, such as managerial assistance, investment and talent networks, and market access,” the report continues.
It is unclear how China would respond to the latest direction, which comes amid an ongoing bilateral attempt to repair strained US-Sino relations.
Several US officials, however, characterised the Biden administration’s stance as a “small yard high, fence approach,” emphasising that the purpose is to prevent China from developing dual-use technology crucial to its military growth, rather than to hurt commerce.
“In the end, China doesn’t need our money.” They’re a net capital exporter, so what we’re trying to prevent is money flowing into China in general, because they have plenty of it,” one of the officials explained.
“They don’t have the know-how, and know-how is often very connected to specific types of investments,” he continued.
The directive has already been considered by the government and business leaders, and according to one official, it has already had “an impact” on investors.
“Just the fact that we’ve been talking about doing this, and that we’re doing it, has had an impact on what’s going on in terms of private equity and venture capital,” he added.
“These firms have heard us in terms of our concerns in these three areas, and you’re already starting to see movement,” the source continued.