Washington DC August 10 2023: The Biden administration will ban some US investment into China’s quantum computing, advanced chips and artificial intelligence sectors, as it boosts efforts to stop the Chinese military from accessing American technology and capital.
The new executive order unveiled by President Joe Biden on Wednesday will come into force next year and will also require companies to notify the government of other investments in the three Chinese sectors.
The action will largely affect private equity and venture capital firms as well as US investors in joint ventures with Chinese groups.
A senior US official said it would create a “very targeted” programme that would focus on the three sectors that the administration has also marked out in a series of other technology-related measures aimed at China.
“We want to provide bright-line guidance on what is prohibited and separately what is notified,” the official said.
Biden said technological progress in the sectors posed “significant national security risks” because computers could advance in ways that would help develop sophisticated weapons and break cryptographic codes used by spy agencies to protect data.
The order is the latest in a series of actions designed to limit Chinese access to advanced technology in what US national security adviser Jake Sullivan has called a “small yard, high fence” strategy.
Beijing has countered that the US actions are designed to limit its technological progress. China’s commerce ministry on Thursday expressed “serious concern” about the order, saying it “deviates from the principles of fair competition and the market economy that the US consistently advocates” and that Beijing retained the right to take countermeasures.
A second US official said the order would protect American security in a “narrowly targeted manner, while maintaining our longstanding commitment to open investment”.
Venture capital and PE groups including the likes of Sequoia China, GGV and Coatue have poured billions into Chinese tech over the past two decades, funding the growth of nearly every large tech company from TikTok-owner ByteDance to dronemaker DJI.
The move threatens to hurt efforts to resurrect top-level engagement that stalled after a suspected spy balloon flew over the US earlier this year. Biden and President Xi Jinping agreed at the G20 in Bali in October to try to stabilise relations and make sure competition did not veer info conflict.
The US has been working with its allies to forge as much consensus as possible about the need to restrict investment in China. But the effort has been complicated because other countries are worried that the US move goes too far and, in some cases, because of domestic legal constraints.
US officials have expressed hope that some countries will act once Washington has led the way. But even some close allies appear to be balking. Japanese officials have privately made clear that Tokyo does not intend to revise legislation governing outbound China investments.
However, US officials said the UK and Germany, and also the European Commission, had expressed interest in developing similar outbound investment regimes.
Republicans criticised the order for not being broader. Nikki Haley, one of the GOP presidential contenders, said it was “not even a half measure”.
“To stop funding China’s military, we have to stop all US investment in China’s critical technology and military companies, period,” she said.
The first official said the administration wanted to focus on the sectors that were most relevant to slowing China’s military modernisation and intelligence capabilities.
Another US official said the administration was targeting private equity and venture capital because they could introduce Chinese groups to other technology companies and experts. “What we are trying to get at here is the intangible benefits,” the official said. “Ultimately China doesn’t need our money.”
Emily Kilcrease, a technology expert at the CNAS think-tank, said it was a “good first step to de-risking” from China but would “leave many camps unhappy”. She said some would criticise it for not being broader, but that the period needed to create a final rule from the order left scope for changes.
“There will be continued efforts to lobby against hard prohibitions and to water down the scope of technologies covered,” Kilcrease said.