President Joe Biden has signed an executive order to stop certain new US investments in China’s sensitive technology sectors, such as computer chips. The order will also require the US government to be notified about investments in other tech areas.
The order allows the US Treasury Secretary to limit or prevent US investments in Chinese companies in semiconductors and microelectronics, quantum information technologies, and certain types of artificial intelligence systems. The goal is to prevent American assets and expertise from aiding China’s military advancements and potentially harming US national security.
The US goes for the jugular.
The order will affect private equity, joint ventures, venture capital, and new investments. The Chinese government strongly disagreed with the US’s decision and opposed introducing investment restrictions. They hope the US will respect market laws and fair competition and avoid hindering global economic cooperation.
This order mainly targets investments in Chinese firms working on software for designing computer chips and the tools used to manufacture them. We, Japan, and the Netherlands currently dominate these fields. The regulation will impact future investments, not existing ones, and the Treasury may also request information about past transactions.
The move can potentially increase tensions between the two largest economies in the world. While US officials emphasize that the goal is to address national security risks, they also clarify that it’s not intended to separate the two countries closely connected economies.
China, CCP left fuming, warn of lasting impact on global supply chains
China has strongly criticized President Joe Biden’s newly signed executive order that restricts US investment in technology, but for now, it has not announced any immediate retaliatory actions.
The Chinese commerce and foreign affairs ministries issued strong statements in response to the executive order, which targets “countries of concern” based on national security considerations. China expressed dissatisfaction and opposition to the US for introducing investment restrictions, describing it as economic coercion and technological bullying.
The Chinese Commerce Ministry called on the US to respect the principles of fair competition and the market economy. It urged the US not to hinder global trade artificially or create obstacles that could impede global economic recovery.
Eswar Prasad, a professor in international trade at Cornell University, stated that the message from the US is clear. The US wants to use the pretext of national security to limit technology transfers and investments related to technology to China. This move is seen from a national security perspective and as an effort to protect commercial interests.
China has not announced any specific countermeasures in response to the executive order.
Tough time for China
President Biden’s executive order comes at a challenging time for China’s economy, as recent economic data highlights a slowdown in growth. Consumer prices in China dropped for the first time in two years in July, and producer prices have been declining for ten consecutive months on a year-on-year basis.
Prasad points out that while it might not have been planned this way by the US Treasury or the Biden administration, the timing of the executive order is unfortunate for China. The country faces falling confidence, slowing growth, and the risk of a downward spiral characterized by deflation, low growth, and lack of confidence reinforcing each other.
This situation could have significant implications for China’s growth trajectory, mainly since the country aims to transition into high-tech and higher value-added industries. While China is eager to reduce reliance on foreign capital, foreign technology remains crucial for its aspirations. Without access to alien technology, it could be challenging for China to leap into becoming a high-tech leader.
China’s leaders have been changing their approach toward private and foreign investors as part of their efforts to boost economic growth. However, domestic innovation efforts have faced challenges. The country’s economic recovery after the pandemic is expected to be complex and challenging.
In essence, the timing of the executive order and China’s economic situation could create further headwinds for the country’s growth plans and ambitions in the technology sector.
