Joe Biden orders ban on certain US tech investments in China

Biden, a Democrat, said in a letter to Congress he was declaring a national emergency to deal with the threat of advancement by countries like China "in sensitive technologies and products critical to the military, intelligence, surveillance or cyber-enabled capabilities."

SEMICONDUCTORS A PRIORITY

The proposal focuses on investments in Chinese companies developing software to design computer chips and tools to manufacture them. The U.S., Japan and the Netherlands dominate those fields, and the Chinese government has been working to build homegrown alternatives.

The White House said Biden consulted allies on the plan and incorporated feedback from Group of Seven nations.

"For too long, American money has helped fuel the Chinese military's rise," said Senate Democratic Leader Chuck Schumer. "Today the United States is taking a strategic first step to ensure American investment does not go to fund Chinese military advancement."

The regulations will only affect future investments, not existing ones, Treasury said, but it may ask for disclosure of prior transactions.

The move could fuel tensions between the world's two largest economies. The Chinese embassy in Washington said it was "very disappointed" by the measure.

U.S. officials insisted the prohibitions were intended to address "the most acute" national security risks and not to separate the two countries' highly interdependent economies.

Republicans said the order was rife with loopholes, such as only applying to future investment, and was not aggressive enough.

SOME EXEMPTIONS EXPECTED

The order will prohibit some deals and require investors to notify the government of their plans on others.

The Treasury said it anticipates exempting "certain transactions, including potentially those in publicly traded instruments and intracompany transfers from U.S. parents to subsidiaries."

The Chinese tech industry, once a magnet for U.S. venture capital, has already seen a drastic decline in U.S. investment amid intensifying geopolitical tension.

Last year, total U.S.-based venture-capital investment in China plummeted to $9.7 billion from $32.9 billion in 2021, according to PitchBook data. This year so far, U.S. V.C. investors only put $1.2 billion into Chinese tech startups.

The measure is expected to be implemented next year, a person briefed on the order said, after multiple rounds of public comment, including an initial 45-day comment period.

REPUBLICAN SEES MANY LOOPHOLES

Republican Senator Marco Rubio said the Biden administration' plan was "almost laughable."

"It is riddled with loopholes, explicitly ignores the dual-use nature of important technologies, and fails to include industries China's government deems critical," he said.

A spokesman for the Chinese embassy in Washington said the White House had not heeded "China's repeated expression of deep concerns" about the plan.

The spokesman said more than 70,000 U.S. companies do business in China. The restrictions will hurt both Chinese and American businesses, interfere with normal cooperation and reduce investor confidence in the U.S., he said.

The Semiconductor Industry Association said it hopes the order will enable "U.S. chip firms to compete on a level-playing field and access key global markets, including China."

Emily Benson of the Center for Strategic and International Studies (CSIS), a bipartisan policy research organization, said key questions are how the plan affects U.S. allies and how China responds.