Biden Signs an executive order restricting US Investments in Chinese Tech

In a significant move aimed at safeguarding national security interests, President Joe Biden has signed an executive order that imposes restrictions on US investments in sensitive technology sectors in China. This long-awaited directive marks a crucial step in addressing China's rapid advancements in key technological fields that have significant implications for military, intelligence, surveillance, and cyber capabilities.

The executive order grants authority to the US Treasury Secretary to limit American investments in Chinese industries related to semiconductors, microelectronics, quantum information technology, and certain artificial intelligence systems. These areas have been identified as critical to the military and security apparatus, making them top priorities for safeguarding American interests.

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These financial restrictions target Chinese businesses that specialize in semiconductor design software and manufacturing tools in particular. Currently, the United States, Japan, and the Netherlands dominate these sectors, but China has been actively developing alternatives to reduce its dependence on foreign technology.

Importantly, US officials emphasize that these bans are intended to address the most pressing national security threats rather than create divisions between the world's two largest economies. It is a strategic move to ensure that American investments do not inadvertently contribute to China's military advancements.

Furthermore, Senate Democratic Leader Chuck Schumer praised President Biden's decision, stating that "American money has fueled the Chinese military's rise for too long" and that the US is taking a necessary first step to prevent such funding. Schumer also called on Congress to further codify and refine these constraints.

However, not everyone believes the executive order goes far enough. House Foreign Affairs Committee Chairman Michael McCaul commended the restrictions on new outbound investments in China but expressed concerns about the exclusion of existing technology investments and the omission of sectors such as biotechnology and energy.

The executive order establishes several mechanisms to enforce these restrictions. It requires government notification for most investments, and certain transactions will be outright banned. However, exemptions may be granted for specific cases, such as publicly traded instruments and intracompany transfers from US parents to subsidiaries.

A Chinese embassy official in Washington expressed disappointment and concern over the move, emphasizing that it could undermine the interests of both Chinese and American companies and investors. The Chinese Commerce Ministry accused the US of disrupting global industry and supply chains.

The executive order is expected to come into effect next year after undergoing multiple rounds of public comment, including a 45-day comment period. Regulators will release an advance notice of proposed rulemaking to define the program's scope and gather public input before proposing specific regulations.

Emily Benson of the Center for Strategic and International Studies (CSIS) anticipates that the restrictions will extend to military AI investments, with other AI investments requiring government notification. Deciding what constitutes a military application of AI will be a critical challenge for the administration.