Biden Puts the Brakes on China’s Tech Ambitions

The Biden administration has taken a major step to impede China’s development of key technologies that could be used for military and intelligence purposes. New restrictions on U.S. investment in high-tech Chinese industries like AI and quantum computing were laid out in an executive order signed by President Joe Biden on Wednesday. The primary goal of these rules is to prevent investments from the United States from aiding in China’s military modernization, which could be harmful to American security.

The executive order, according to a high-ranking administration official, is intended more for reasons of national security than economics. The United States acknowledges the positive effects of foreign direct investment on its economy in the past. The purpose of this executive order is to maintain the government’s commitment to free and open investment while also protecting specific national security interests.

The order forbids American investment in China’s high-tech chip industry. Investments in less sophisticated chips and AI, however, will be allowed, provided the U.S. government is informed in advance. Importantly, all funding for research and development of quantum computing will be halted. This includes work on quantum computers, sensors, and networks.

It’s worth emphasizing that these limitations are placed on prospective investments only and do not affect any current agreements. Particular attention will be paid to the dealings of private equity and venture capital firms.

After consulting with the business community at large, the executive order was drafted. Executives in the United States voiced concerns about the potential negative effects on American businesses and the domestic economy. Many American businesses still rely heavily on the Chinese market because of China’s huge consumer market and second-largest economy in the world.

The U.S.-China Business Council has stated that it will be keeping an eye on how the Biden administration defines “covered national security technologies and products.” The council stresses the importance of working together to advance shared interests and prevent unfair competitive disadvantages for U.S. businesses. The Semiconductor Industry Association has high hopes that the final rules will open up China as a viable market for American businesses.

Worried about the effect the order will have on global industries and supply chains, China’s Ministry of Commerce voiced its concerns. The government is praying that the United States won’t stifle international commerce. According to the ministry’s spokesperson, recent investment restrictions may hurt both Chinese and American businesses, make it harder to work together, and reduce trust in the U.S. business climate.

The United States is committed to maintaining capital investment between the world’s two largest economies, according to high-ranking administration officials. However, “intangible” benefits, such as American expertise that could speed up China’s technological development, must be restricted. Companies in the investment portfolio of private equity and venture capital firms are often put in touch with specialists who can aid in the company’s development.

Commerce Secretary Gina Raimondo is scheduled to travel to Beijing later this month, which is what prompted this executive order. Also, Chinese Foreign Minister Wang Yi will be in the United States soon. Secretary of State Antony Blinken and Secretary of the Treasury Janet Yellen each traveled to Beijing earlier this summer in an effort by the Biden administration to defuse tensions between the two countries. Yellen visited China to reassure her counterparts there that the executive order would have limited effects on the country’s economy.

The Chinese Embassy in Washington was dismayed by the executive order because it furthers the economic decoupling between the United States and China. According to China’s ambassador to the United States, Xie Feng, Beijing “will not make provocations, but we will not flinch from provocations.” Even as the United States takes action to protect its national security interests, the State Department emphasized the importance of open dialogue to preserve stability in the relationship.

The United States and China continue to compete with one another in the technological arms race. To impede China’s domestic manufacturing capabilities and its progress toward developing supercomputers and advanced weapons, the U.S. Department of Commerce imposed restrictions on sales of advanced technology to China last year. U.S.-Chinese financial transactions are the target of a recent executive order.

Lawmakers are split on whether or not the new restrictions on investments go far enough. Rep. Michael McCaul, who heads the House Foreign Affairs Committee, voiced concern that the order would leave out sectors like energy and biotechnology that have already received significant investment.

In conclusion, the executive order signed by President Biden is a major step toward limiting American involvement in Chinese high-tech industries that could be used for military or intelligence purposes. The goal is to prevent China from gaining a technological advantage in its military modernization efforts at the expense of the United States. It will be interesting to see how this order plays out in the global economy, supply chains, and the U.S.-Chinese relationship as a whole. The future course of this intricate and ever-changing relationship will be heavily influenced by the ongoing diplomatic engagements between the two countries.

See first source: CBS

Frequently Asked Questions

1. What is the purpose of the executive order signed by President Biden?

The executive order aims to impede China’s development of key technologies that could have military and intelligence applications. It restricts U.S. investment in high-tech Chinese industries like AI, quantum computing, and high-tech chip manufacturing to safeguard U.S. national security interests.

2. What is the motivation behind these restrictions?

The restrictions are primarily driven by national security concerns rather than economic factors. The U.S. seeks to protect its security interests while maintaining open investment channels.

3. What areas of Chinese high-tech industries are affected by the executive order?

The executive order forbids American investment in China’s high-tech chip industry and halts funding for research and development of quantum computing, including quantum computers, sensors, and networks. Investment in less sophisticated chips and AI is allowed with prior U.S. government notification.

4. How do these restrictions impact current agreements and partnerships?

The restrictions apply to prospective investments and do not affect existing agreements. Private equity and venture capital firms’ dealings will be closely monitored.

5. How did the business community and relevant stakeholders respond to the executive order?

After consulting with the business community, the executive order was drafted. The U.S.-China Business Council emphasized the importance of defining “covered national security technologies and products” to avoid unfair competitive disadvantages. The Semiconductor Industry Association hopes the final rules will provide access to China as a viable market.

6. How has China’s government reacted to the executive order?

China’s Ministry of Commerce expressed concerns about the potential impact on global industries and supply chains. The government hopes to avoid stifling international commerce and maintain cooperation between Chinese and American businesses.

7. How does the U.S. plan to maintain capital investment while imposing restrictions?

The U.S. administration intends to maintain capital investment between the two largest economies while restricting intangible benefits that could accelerate China’s technological development.

8. How does the executive order relate to recent diplomatic engagements between the U.S. and China?

The order comes ahead of planned diplomatic engagements, such as Commerce Secretary Gina Raimondo’s visit to Beijing and the visit of Chinese Foreign Minister Wang Yi to the United States. The Biden administration aims to manage tensions and preserve stability in the U.S.-Chinese relationship.

9. What sectors are excluded from the new investment restrictions, and what are lawmakers’ opinions?

Lawmakers have differing opinions on the scope of the restrictions. Rep. Michael McCaul expressed concern that sectors like energy and biotechnology, which have received significant investment, might be excluded.

10. What is the broader impact of the executive order?

The executive order represents a major step toward limiting U.S. involvement in specific Chinese high-tech industries with military and intelligence potential. Its effects on the global economy, supply chains, and the U.S.-Chinese relationship will be closely watched and influenced by ongoing diplomatic engagements.

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