The White House unveiled a long-awaited executive order restricting U.S. investment in high-tech Chinese industries such as quantum computing, semiconductors, and artificial intelligence.
The restriction targets venture capital and private-equity investments, and would require more disclosure by American companies when they invest in a broad range of Chinese companies. Officials emphasized that the new rules are meant to strengthen national security, not disrupt cross-border investments.
“The commitment of the United States to open investment is a cornerstone of our economic policy,” President Joe Biden said in the order. “However certain United States investments may accelerate and increase the success of the development of sensitive technologies and products in countries that develop them to counter United States and allied capabilities.”
Senior administration officials told reporters on Wednesday that they were considering an exemption for publicly traded Chinese securities. The rules regarding venture capital and private equity are meant to limit the transfer of American expertise, the officials said. Venture and private equity investing often provides companies with additional benefits, such as access to advisors, management assistance, talent networks, and enhanced funding opportunities, the White House said.
China isn’t mentioned in the order except in an “annex” to it, where it is named once along with its territories Macau and Hong Kong.
The order could raise tensions between the two countries, which have been trying to re-establish contact. Treasury Secretary Janet Yellen said Chinese officials raised concerns about the expected order when she visited the country in July. She emphasized at the time that any measures would be narrowly targeted.
China has argued that recent administration trade measures are aimed at hurting its fledgling tech industries. The Biden administration has put limits on the sale of processor chips and other American technology to China, citing national security.
At the same time, China has banned Chinese companies from buying products from American memory chip maker
Micron Technology
(ticker: MU). It also set export restrictions on gallium and germanium, two minerals that are critical to making semiconductors and solar panels.
Senior administration officials told reporters on Wednesday that officials had been in direct conversations with members of the Group of Seven nations as well as China about the order. The European Union is also looking at certain investment restrictions.
Lawmakers in the House have been investigating venture-capital firms’ investment activities in Chinese companies. The House Select Committee on the Chinese Communist Party has been looking at investments in technologies that could someday be used against the U.S.
Some firms are making moves to separate their China activities. Sequoia Capital, an early backer of Google and Instagram, said in June it would divide itself into three distinct companies, focused respectively on China, India and Southeast Asia, and the U.S. and Europe.
Sequoia’s China operations had already been making investments in the country”s healthcare, consumer, and technology sectors. “It has become increasingly complex to run a decentralized global investment business,” the firm said in June. “We have decided to fully embrace our local-first approach.” The split should be done by March 2024, it said.
Write to Liz Moyer at [email protected]
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