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Politics
BIDEN AIMS TO UNVEIL CHINA INVESTMENT CURBS WITH G-7 BACKING
* US wants key allies to endorse concept at May summit in Japan
* Order will focus on chips, AI, quantum investments in China
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WATCH: President Joe Biden aims to sign an executive order that will limit key
investments by American businesses in parts of China’s economy. Source:
Bloomberg
By
Jenny Leonard
+Follow
April 20, 2023 at 3:48 PM GMTUpdated onApril 21, 2023 at 7:56 AM GMT
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President Joe Biden aims to sign an executive order in the coming weeks that
will limit investment in key parts of China’s economy by American businesses,
people familiar with the internal deliberations said.
The administration, which has been debating the measure for almost two years,
plans to take action around the time of a summit of the Group of Seven advanced
economies that’s due to start on May 19 in Japan.
The US has been briefing its G-7 partners on the investment curbs for high-tech
industries, and hopes to get an endorsement at next month’s meeting, even though
the other countries aren’t expected to announce similar restrictions at the same
time, the people said. The likeliest sequence is for the executive order to be
signed soon after that expression of international support, one of the people
said.
WATCH: Treasury Secretary Janet Yellen says “national security is of paramount
importance” to the Biden administration in US relations with China.
Source: Bloomberg
The move marks a new phase in the years-long economic campaign against China
that’s already seen the US impose tariffs on Chinese imports under ex-President
Donald Trump, and more recently seek to restrict exports of key American
technologies. Now, capital flows between the world’s two biggest economies are
in the crosshairs.
Read More: PE Firms Feel Chill on China Investing as Biden Crackdown Nears
On Friday, China accused the US of politicizing tech issues. Foreign Ministry
spokesman Wang Wenbin said Washington’s “real goal is to deprive China of its
development rights. It is pure economic coercion.”
The Asian nation would protect its rights and interests, he said at a regular
press briefing in Beijing, without going into detail on how that would happen.
Investors largely shrugged off concerns of more restrictions, saying they would
do little to impact actual business because US investments in some of China’s
high-tech sectors have already been receding. China’s chip stocks slid Friday as
investors took profit while assessing the impact of rising geopolitical tensions
with the US.
“The US has been working towards this for awhile and US investments in sensitive
areas has already been declining,” said Marvin Chen, an analyst at Bloomberg
Intelligence. “Nonetheless, China tech will become more reliant on domestic
capital pool and state support as foreign investment continues to withdraw.”
AI, QUANTUM COMPUTING
The US says it’s imposing the curbs on national security grounds – a point
emphasized by Treasury Secretary Janet Yellen in a speech Thursday – rather than
in an effort to hold back the development of a rival superpower, as Beijing has
argued.
Tensions have escalated since Russia’s invasion of Ukraine, a conflict in which
the US and China effectively find themselves on opposite sides, and there’s
growing concern about a new Cold War that could fracture the world economy into
rival blocs.
The executive order will cover the fields of semiconductors, artificial
intelligence and quantum computing – focusing on investments where US firms play
an active role in management. That includes venture capital and private equity,
as well as certain forms of technology transfer and joint ventures. Officials
involved in drafting the order say it targets potential new investments, not
existing ones.
Some types of investment will be barred outright, while others will require
companies to notify the government. Details are set to be outlined in a set of
regulations to follow the executive order, and companies will have some time to
offer feedback before the order goes into effect.
US officials say the investment limits are intended to choke off critical
funding and know-how that could advance China’s military capabilities.
In a speech delivered in Washington Thursday that addressed US-China economic
ties, Yellen said the curbs on outbound investment will affect “specific
sensitive technologies with significant national security implications.”
COMPETITIVE ADVANTAGE
“These national security actions are not designed for us to gain a competitive
economic advantage, or stifle China’s economic and technological modernization,”
Yellen said. The US will pursue its security concerns regarding China “even when
they force trade-offs with our economic interests,” and will “engage and
coordinate with our allies and partners” over the policies, she said.
Read More: Yellen Says China Security Worries Eclipse Economy Interests
US officials have made clear that a unilateral measure wouldn’t fulfill the
national security goals because investments in China by other countries could
just take the place of the American ones that the administration is about to
block.
Treasury Department officials this week briefed their European counterparts on
the measure, and the administration has begun sharing information with business
leaders too. Once the order takes effect, Treasury will be administering a
one-year pilot program that could later be expanded.
A spokesman for the National Security Council declined to comment.
As China’s economy took off in the past three decades, American companies plowed
money in as they sought to capture a slice of the world’s fastest-growing major
market and lower the cost of production for supply chains.
US DIRECT INVESTMENT IN CHINESE MANUFACTURING
Cumulative investment by industry through end of 2021
Source: Bureau of Economic Analysis
Cumulative total investment there by US business was worth almost $120 billion
at the end of 2021, with about half of that going into manufacturing, according
to the Bureau of Economic Analysis.
But the growing consensus in Washington in favor of curbs on China, along with
Beijing’s turn to more interventionist policies, may already have dented the
enthusiasm of many firms.
Last year, the share of deals by US private equity investors that involved
buying stakes in Chinese companies shrank to about one-quarter of what it was a
decade earlier, PitchBook data show.
— With assistance by Alberto Nardelli, John Cheng, Catherine Ngai, Colum Murphy
and Philip Glamann
(Updates with comments from China’s Foreign Ministry.)
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