The government said that President Joe Biden’s executive order to prohibit and regulate high-tech investments from the United States going to China was targeted, but it also reflected the escalating rivalry between the two greatest powers in the world.
Artificial intelligence, quantum information technology, microelectronics, and sophisticated computer chips are all included in the order. The endeavor, according to senior administration officials, was motivated by national security objectives rather than economic ones, and the range of categories it covered was limited on purpose. The directive aims to maintain higher levels of trade that are essential for the economy of both countries while limiting China’s capacity to exploit U.S. investments in its technology companies to improve its military.
In response, the Chinese Ministry of Commerce said in a statement early on Thursday that it had “serious concern” about the decision and “reserves the right to take measures.”
The United States and China seem to be involved in a geopolitical battle with opposing sets of ideals. Officials in the Biden administration have emphasized that they have no interest in “decoupling” from China, but the U.S. has also restricted the sale of cutting-edge computer chips and maintained the increased tariffs put in place by President Donald Trump. China’s answer to this was that the U.S. was “using the cover of ‘risk reduction’ to carry out ‘decoupling and chain-breaking’.” China has repressed international businesses.
As the United States has reactivated its ties with Japan, South Korea, Australia, and the European Union, Biden has suggested that China’s economy is suffering and that its global ambitions have been restrained. When drafting the executive order, the administration talked with supporters and businesses.
At a fundraiser in June in California, Biden advised donors, “Worry about China, but don’t worry about China.”
The authorities outlining the order claimed that China had taken advantage of American investments to assist the production of weapons and modernize its armed forces. The new restrictions were made with care so as not to harm China’s economy, but rather to complement the export restrictions on cutting-edge computer chips from the previous year, which sparked opposition from Chinese authorities. The Treasury Department will publish a proposed rulemaking with definitions that would follow the presidential directive, go through a public comment period, and monitor the investments.
The order’s objectives include prohibiting certain investments and requiring investors to notify the U.S. government of specific sorts of transactions with China. According to officials, the order focuses on industries like private equity, venture capital, and joint ventures where investments may be made that may provide countries of concern like China more information and military power.
The order, according to attorney and former Treasury official J. Philip Ludvigson, was merely a starting point that may be enlarged later.
The executive order that was released today, according to Ludvigson, “really represents the beginning of a conversation between the U.S. government and industry regarding the specifics of the ultimate screening regime.” Although the presidential order is initially restricted to quantum information technology, artificial intelligence, semiconductors, and microelectronics, it clearly allows for a future expansion to other areas.
It is also a top priority for both parties. By a vote of 91-6, the Senate amended the National Defense Authorization Act in July to include provisions for monitoring and limiting investments in nations of concern, such as China.
However, Wednesday’s response to Biden’s directive revealed a desire to exert further pressure on China. Although the order was an “essential step forwards,” Rep. Raja Krishnamoorthi of Illinois said that it “cannot be the final step.” Former U.S. ambassador to the UN and Republican presidential candidate Nikki Haley argued that Biden needed to be more assertive when he said, “We have to stop all U.S. investment in China’s critical technology and military companies — period.”
Following the American shooting down of a Chinese spy balloon that was flying above the United States, Biden referred to Chinese President Xi Jinping as a “dictator” A topic of contention has been Taiwan’s position; Biden claimed that China has turned coercive in regards to Taiwan’s independence.
Despite the fact that Biden has stated that the partnership has not included the sale of arms China has backed Russia since its invasion of Ukraine in 2022.
The U.S. Chamber of Commerce stated that throughout the order’s preparation, it met with the White House and several government agencies on a number of occasions. The organization stated that its goal during the comment period will be “to ensure the measure is targeted and administrable.”
Although U.S. officials have long hinted at the impending presidential order on investing in China, it’s uncertain if the financial markets will view it as a tapering move or as a continuation of tensions rising at a precarious time.
Elaine Dezenski, a senior director at the Foundation for Defense of Democracies, stated that “the message it sends to the market may be far more decisive.” American and international businesses are already reevaluating the dangers of making investments in China. U.S. foreign direct investment has already been hampered by Beijing’s so-called “national security” and “anti-espionage” rules, which restrict regular and essential corporate due diligence and compliance. That chilling now runs the risk of freezing over.
The executive order “seriously deviates from the market economy and fair competition principles the United States has always advocated,” the Chinese Ministry of Commerce stated in a statement. It substantially jeopardizes the security of international industrial and supply networks as well as the regular business decisions made by corporations and the global economic and trade system.
Coming out of pandemic lockdowns, China’s robust economic growth has sputtered. Its National Bureau of Statistics revealed on Wednesday that consumer prices dropped 0.3% in July compared to the same month last year. This degree of deflation suggests that consumer demand is weak in China, which could be detrimental to GDP.
In addition, the State Administration of Foreign Exchange reported that foreign direct investment into China decreased 89% from a year earlier in the second quarter of this year to $4.9 billion.
According to Chinese experts, the majority of foreign investment is thought to be brought in by Chinese businesses that are using foreign currency to obtain tax cuts and other benefits.
Foreign business organizations claim, however, that international corporations are also relocating their investment strategies to different economies.
Due to stricter security measures and a lack of progress on reform commitments, foreign businesses have lost faith in China. Investors are worried about their future in the state-dominated economy in light of calls by leaders like Xi for greater economic self-reliance.
