On Wednesday, President Joe Biden initiated a major policy move, signing an executive order to limit certain new American investments in China. These include areas such as computer chip technology, and will require government notice within other sectors of technology.
This anticipated directive enables the U.S. Treasury Secretary to block or limit U.S. investments in Chinese firms within three specific fields: semiconductors and microelectronics, quantum information technologies, and selected artificial intelligence systems.
Biden has announced a national emergency, citing the advancement threat from countries like China in technologies vital to military, intelligence, and cyber-enabled capabilities.
China has expressed severe concern over this decision, stating on Thursday that it reserves the right to take action. It believes the order disrupts normal business operations, hampers international economic order, and violates the principles of a free market and fair competition.
The Chinese Commerce Ministry has further urged the U.S. to avoid creating barriers to global economic cooperation and recovery. In a separate declaration, the Chinese foreign ministry stated that China “strongly dissatisfied” with the U.S.’s continued insistence on investment restrictions.
Hong Kong’s government has also voiced its opposition, labeling the U.S. restrictions as “unreasonable measures” that interfere with regular investment and trade activities, undermining international order and harming the interests of American businesses.
Focus on Semiconductors
The U.S. proposal specifically targets investments in Chinese companies involved in software development for computer chip design and manufacturing tools. These sectors are currently dominated by the U.S., Japan, and the Netherlands. China has been attempting to create its own alternatives.
The U.S. has aligned this plan with allies and the G7 nations.
Senate Democratic Leader Chuck Schumer emphasized the importance of preventing American investments from aiding Chinese military growth.
The Treasury Department clarified that the regulations will only affect future investments. However, it may request disclosure of previous transactions, raising concerns over tensions between the two global economic giants.
Some Exemptions and Criticisms
The order will make exceptions for certain transactions, including publicly traded instruments and transfers between U.S. parent companies and their subsidiaries.
The Chinese technology industry, which used to attract U.S. venture capital, has seen a decline in American investments, dropping from $32.9 billion in 2021 to $9.7 billion the following year.
The policy is expected to be rolled out next year, pending public comment.
Critics, including Republican Senator Marco Rubio, have slammed the plan as “almost laughable,” citing numerous loopholes and omissions of critical industries.
The Chinese embassy in Washington has expressed deep disappointment, warning that restrictions will harm both Chinese and American businesses and erode investor confidence.
Industry representatives, such as the Semiconductor Industry Association, hope that the order will ensure fair competition for U.S. firms in global markets, including China.
Emily Benson from the Center for Strategic and International Studies (CSIS) highlights that crucial questions remain, including how the plan will affect U.S. allies and China’s response.
Read More: