President Joe Biden on Wednesday signed an executive order that prohibits certain US investments in sensitive technology — a move designed to shore up national security concerns amid growing tensions between the superpowers.
The long-awaited order authorizes the Treasury secretary to ban or restrict certain US investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems.
Biden 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.”
“The inability to trust not only what comes out of the Chinese government but what they do with the data they have access to is the motivation for banning future investments in China,” Matthew Carbray, a managing partner at Connecticut-based Ridgeline Financial Partners LLC, told The Post on Wednesday.
The executive order won’t be implemented until next year — after multiple rounds of public comment, including an initial 45-day comment period on the proposed rule-making, sources in the Biden administration said.
Senate Majority Leader Chuck Schumer praised Biden’s order, saying “for too long, American money has helped fuel the Chinese military’s rise. Today the United States is taking a strategic first step to ensure American investment does not go to fund Chinese military advancement.”
The Democrat said Congress must enshrine restrictions in law and refine them.
Most investments captured by the order will require the government be notified about them. Some transactions will be prohibited. Treasury said it anticipates exempting “certain transactions, including potentially those in publicly-traded instruments and intracompany transfers from US parents to subsidiaries.”
Those that violate the ban could be hit with fines and be forced to divest their stakes, people familiar with the order told the Wall Street Journal.
Biden’s decision could fuel tensions between the world’s two largest economies, although US officials insisted the prohibitions were intended to address “the most acute” national security risks and not to separate the two countries’ highly interdependent economies.
A spokesman for the Chinese Embassy in Washington did not immediately respond to a request for comment on Wednesday but the embassy said Friday the United States “habitually politicizes technology and trade issues and uses them as a tool and weapon in the name of national security.”
Emily Benson, of the Center for Strategic and International Studies, a bipartisan policy research organization, said she expects investments in artificial intelligence to be prohibited to military users and uses, and that other investments in the sector will only require notification to the government.
Benson said the burden will fall on the administration to determine what AI falls into the military category.
“They will have to draw a line of what constitutes a military application of AI, and to define AI,” said Benson, director of CSIS’s project on trade and technology.
Relations between the US and China are at a low point due to disagreement over economic and defense matters, including the future status of Taiwan, Chinese military expansion in the South China Sea, trade imbalances, intellectual property and human rights.
The Biden administration has made moves to limit the scale of US economic involvement in China in hopes of boosting domestic industries, including the burgeoning American semiconductor and microchip sectors.
“As the Chinese military continues to fortify their position on a global scale, the US government wants to maintain its position as the world’s strongest military presence,” Carbray told The Post.
“As it relates to US-bound investments into China, the lack of transparency is concerning to government officials and our competitive edge in technology would be undermined without this legislation.”
Direct US investment into China hit a 20-year low of $8.2 billion last year, according to the Rhodium Group, which also said U.S. venture-capital investment hit a 10-year low of $1.3 billion last year, the Wall Street Journal reported.
The restrictions on American investments in China come at a perilous time for Beijing’s economy, which has been battered by the country’s draconian COVID lockdowns.
A report Wednesday showed China’s consumer sector fell into deflation and factory-gate prices extended declines in July, putting pressure on Beijing to release more direct policy stimulus.
The ruling Communist Party reported on Tuesday that Chinese exports fell in July to a low not seen since the start of the coronavirus pandemic — a sign that US companies and consumers are shunning Chinese-manufactured products.