Biden orders ban on US investments in China’s high-tech industries
WASHINGTON — President Joe Biden escalated his confrontation with China on Wednesday by signing an executive order banning American investments in key technology industries that could be used to enhance Beijing’s military capabilities, the latest in a series of moves putting further distance between the world’s two largest economies.
The order will prohibit venture capital and private equity firms from pumping money into Chinese efforts to develop semiconductors and other microelectronics, quantum computers and certain artificial intelligence applications. Administration officials stress that the move was tailored to guard national security, but China is likely to see it as part of a wider campaign to contain its rise.
“The Biden administration is committed to keeping America safe and defending America’s national security through appropriately protecting technologies that are critical to the next generation of military innovation,” the Treasury Department said in a statement. The statement emphasized that the executive order was a “narrowly targeted action” complementing existing export controls and that the administration maintained its “longstanding commitment to open investment.”
The new order comes at perhaps the most fraught moment in the U.s.-china relationship since President Richard Nixon and Secretary of State Henry Kissinger opened a dialogue with Beijing in the early 1970s. A series of expanding export controls on key technologies to China has already triggered retaliation from Beijing, which recently announced the cutoff of metals including gallium that are critical for the Pentagon’s own supply chain.
Biden has stressed that he wanted to stabilize relations with China after a Cold War-style standoff over a spy balloon shot down after crossing through U.S. airspace and the discovery of a broad Chinese effort to put malware into power grids and communications systems. He has sent Secretary of State Antony Blinken, Treasury Secretary Janet Yellen and other officials to reopen communications in recent months. Gina Raimondo, the commerce secretary, is expected to go to China in coming weeks.
Administration officials have argued that they have been acting with a prudence that should have been exercised around key technologies years ago.
But Wednesday’s announcement takes that effort to a new level. While export bans and concerns about Chinese investment in the United States have a long history, the U.S. has never before attempted broad limits on the flow of investment into China.
In fact, for much of the past few decades, it has encouraged American investors to deepen their ties in the Chinese economy, viewing that as a way to expand the web of interdependencies between the two countries that would gradually integrate Beijing into the Western economy and force it to play by Western rules.
Reviews over the past few years, however, concluded that investments in new technologies and joint ventures were fueling China’s military and its intelligence-collection capabilities, even if indirectly. U.S. officials have been actively sharing intelligence reports with allies to make the case that Western investment is key to China’s military modernization plans — especially in space, cyberspace and the kind of computer power that would be needed to break Western encryption of critical communications.
The executive order coincides with a bipartisan effort in Congress to impose similar limits. An amendment along those lines by Sens. Bob Casey, D-PA., and John Cornyn, R-texas, was added to the Senate version of the annual defense authorization bill. Administration officials said they would try to align their upcoming rules with the congressional framework.
The Treasury Department will begin taking comments before drafting rules to be put in place next year.