Biden issues an executive order restricting US investments in Chinese technology

President Joe Biden signed an executive order Wednesday to block and regulate high-tech U.S.-based investments going toward China – a move the administration said was targeted but it also reflected an intensifying competition between the world’s two biggest powers.

The order covers advanced computer chips, micro electronics, quantum information technologies and artificial intelligence. Senior administration officials said that the effort stemmed from national security goals rather than economic interests, and that the categories it covered were intentionally narrow in scope. The order seeks to blunt China’s ability to use U.S. investments in its technology companies to upgrade its military while also preserving broader levels of trade that are vital for both nations’ economies.

The Chinese Ministry of Commerce responded in a statement early Thursday that it has “serious concern” about the order and “reserves the right to take measures.”

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The United States and China appear to be increasingly locked in a geopolitical competition with a conflicting set of values. Biden administration officials have insisted that they have no interest in “decoupling” from China, yet the U.S. also has limited the export of advanced computer chips and kept the expanded tariffs set up by President Donald Trump. And in its response, China accused the U.S. of “using the cover of `risk reduction’ to carry out `decoupling and chain-breaking.”’ China has engaged in crackdowns on foreign companies.

“Worry about China, but don’t worry about China”

Biden has suggested that China’s economy is struggling and its global ambitions have been tempered as the U.S. has reenergized its alliances with Japan, South Korea, Australia and the European Union. The administration consulted with allies and industry in shaping the executive order.

“Worry about China, but don’t worry about China,” Biden told donors at a June fundraising event in California.

The officials previewing the order said that China has exploited U.S. investments to support the development of weapons and modernize its military. The new limits were tailored not to disrupt China’s economy, but they would complement the export controls on advanced computer chips from last year that led to pushback by Chinese officials. The Treasury Department, which would monitor the investments, will announce a proposed rulemaking with definitions that would conform to the presidential order and go through a public comment process.

Private equity, venture capital and joint partnerships

The goals of the order would be to have investors notify the U.S. government about certain types of transactions with China as well as to place prohibitions on some investments. Officials said the order is focused on areas such as private equity, venture capital and joint partnerships in which the investments could possibly give countries of concern such as China additional knowledge and military capabilities.

Philip Ludvigson, a lawyer and former Treasury official, said the order was an initial framework that could be expanded over time.

“The executive order issued today really represents the start of a conversation between the U.S. government and industry regarding the details of the ultimate screening regime,” Ludvigson said. “While the executive order is limited initially to semiconductors and microelectronics, quantum information technologies, and artificial intelligence, it explicitly provides for a future broadening to other sectors.”