U.S. Signs Investment Restrictions on Sensitive Technologies in China!
After nearly two years of negotiating and pulling strings, President Joe Biden's administration yesterday (Aug. 9) detailed new rules restricting U.S. investment in China's advanced technology industries in a bid to protect national security at a time of tensions with the Chinese government.
Link to original article:
https://www.whitehouse.gov/briefing-room/presidential-actions/2023/08/09/executive-order-on-addressing-united-states-investments- in-certain-national-security-technologies-and-products-in-countries-of-concern/
The new rules will limit investments by U.S. private equity and venture capital firms and joint ventures in Chinese artificial intelligence, quantum computing, and semiconductors; the order is intended to discourage U.S. capital and expertise from helping China develop technologies that could support the modernization of its military and undermine U.S. national security, and the measures are aimed at private equity, venture capital, joint ventures, and greenfield investments.
Moreover, the restriction does not mean that all investments involving these sectors cannot be made. Sources familiar with the matter said, for example, the executive order will restrict U.S. capital investment in military use of AI, quantum key encryption and quantum sensing, as well as specific "super-advanced semiconductor industry". While other investments related to AI, quantum computers, semiconductors, although not restricted, still need to report these investment activities to the government.
Joe Biden Speaks on the Economy
Officials announcing the move have repeatedly emphasized that their goal is to limit U.S. capital aid to the Chinese military, not to undermine the economy. "This is a national security action, not an economic action. We recognize the important role that cross-border investment flows play in the vitality of the U.S. economy, and this executive order (is) narrowly tailored to protect our national security interests."
Liu Pengyu, a spokesman for the Chinese embassy in Washington, said China was "very disappointed" by the move. In a statement, it said the restrictions would "seriously harm the interests of Chinese and U.S. enterprises and investors," adding, "China will closely monitor developments and firmly safeguard our rights and interests."
A statement from China's Ministry of Commerce said the order affects normal business operations and decision-making and disrupts the international economic and trade order. "It is hoped that the U.S. side will respect the laws of market economy and the principle of fair competition, and will not 'artificially impede global economic and trade exchanges and cooperation, and set up obstacles to the recovery of the world economy'."
The order is expected to be implemented next year after several rounds of public comment (including an initial 45-day comment period).
The rules will also require companies to report on their activities in China, thus giving the government more insight into U.S. investments in China. The U.S. Department of the Treasury said it expects to exempt "certain transactions, including potentially publicly traded instruments and intra-company transfers from U.S. parent companies to subsidiaries".
The U.S. and China are going head-to-head in restricting exports of high-tech products as Washington's concerns escalate over the risk Beijing poses to its national security. Last October, the Biden administration unveiled a sweeping set of export controls that prohibit Chinese companies from buying advanced chips and chip-making equipment without a license.
Since then, officials have been working to finalize new investment rules, including narrowing them to target only national security technologies.
At the same time, Biden has been seeking to stabilize U.S.-China relations, including by establishing stronger communication mechanisms and sending senior administration officials to China for talks. Officials have said the U.S. has been direct and cautious in its dialog with its Chinese counterparts, pointing to China's long and extensive outbound investment regime.
According to data released by the State Administration of Foreign Exchange (SAFE), foreign direct investment (FDI) inflows into China fell 89 percent year-on-year to $4.9 billion in the second quarter of this year, and total U.S. venture capital investment in China plummeted to $9.7 billion last year from $32.9 billion in 2021, according to PitchBook data. So far this year, U.S. VC investors have invested $1.2 billion in Chinese tech startups.
More than 70,000 U.S. companies have operations in China. It goes without saying that these restrictions will hurt Chinese and U.S. companies, interfere with normal cooperation, and reduce investor confidence in the United States.
For their part, officials said, "This is not to say that our economic relationship with China has somehow shifted, but it is really a reflection of the evolving nature of technology and the fact that when we think about how to appropriately control military and dual-use products, the approach we're taking is holistic and reflective of the ways in which they might be acquired or developed today. "
Despite repeated emphasis that this is a national security action (and not an economic one), the move could still be a precursor to an escalation of U.S. trade and commerce restrictions with China.
U.S.-China trade friction began in 2019 with former U.S. President Donald Trump's decision to impose tariffs on Chinese imports. 2022, and in October the U.S. began directly restricting investment, exports, and talent flows to China in the areas of artificial intelligence and semiconductors. In the field of AI, the U.S. BIS added 28 Chinese companies, universities, and research institutes involved in high-performance computing chips and computer goods to the Commerce Control List (CCL), including security IC companies such as Dahua Corporation and Hikvision, the "Four Little Dragons of AI," Shangtang Technology, Kuangshi Technology, Yunmu Technology, and Yitu Technology, and the domestic High-performance processor leader Haikuang Group.
In the semiconductor field, the U.S. Department of Commerce Bureau of Industry and Security (BIS) released a draft of semiconductor export restrictions on China, including nine new rules covering the export of advanced integrated circuits, high-performance computing systems, semiconductor production equipment, and restrictions on U.S. nationals to participate in the operation of Chinese semiconductor companies.
China also recently announced it was cutting off the supply of metals such as gallium, which is vital to the Pentagon's own supply chain.
Despite all the buzz, the US capital markets have reacted tepidly to the news: investment firms have seen little impact on their business, as many of the previous restrictions have made them less enthusiastic about investing in China's tech sector.
According to PitchBook, the value of U.S. private equity deals involving buyouts of shares in Chinese companies in 2022 has shrunk to about one-fourth of what it was a decade ago, and Bloomberg Intelligence analyst Marvin Chen also said, "As U.S. investment continues to decline, China's tech industry will become more dependent on domestic capital."
The U.S. attempt to curb the development of China's high-tech industry has been clearly revealed, as one of the strategic emerging industries, the quantum computing industry is bound to be affected by the policy restrictions. The key to the development of the industry is to strive to achieve independent control of the whole process of technology. Recently, the construction of China's first optical quantum chip production line has been launched, and a number of domestically produced quantum chips have been officially released, and we have reason to believe that the resonance of technological advances, policy enhancement, and targeted investment will boost China's quantum technology industry to break through the embargo and flourish.
[1]https://edition.cnn.com/2023/08/09/politics/china-investments-white-house-joe-biden/index.html
[4]https://www.npr.org/2023/08/09/1193013362/biden-executive-order-restricts-investments-china-tech
[5]http://www.mofcom.gov.cn/article/syxwfb/202308/20230803426502.shtml
[6]https://mp.weixin.qq.com/s/2c8pa_np1cyb3Me8oCwPtw
[7]https://mp.weixin.qq.com/s/IDPIgezLUv7xN4mlHsBSXg
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