The Biden Administration will try to slow Beijing’s development of next-generation technologies that could have military applications — like advanced semiconductors, artificial intelligence and quantum computing — by limiting the ability of U.S. corporations to invest in those sectors in China.
In an executive order expected to be released Wednesday, American companies will be subject to unprecedented new federal oversight that will scrutinize – and potentially prevent – some of their investments in China’s tech industry. The goal is to ensure that U.S. cash does not support China’s military modernization and potentially threaten the United States.
The rules would not take effect for at least a year, and there will be a public comment period so businesses and other groups can weigh in on the new rules before they are finalized.
Representatives from the White House, Treasury and Commerce Departments were not immediately available for comment.
The administration’s initial plans to limit US investment were more sweeping. But, after months of engagement with the private sector, the focus of the new regulations narrowed.
Some American executives expressed concern that a clampdown of the flow of U.S. capital to China could be harmful to U.S. businesses and have a negative impact on the domestic economy. The Chinese economy – the world’s second largest with more than 1 billion consumers – is a vital market for many American companies.
Earlier this summer, Secretary of State Antony Blinken and Treasury Secretary Janet Yellen took separate trips to Beijing to help ease tensions between the U.S. and China. In Yellen’s meetings with her Chinese counterparts, she tried to reassure them that the executive order would be “highly targeted.”
“I want to allay their fears that we would do something that would have broad based impacts on the Chinese economy,” Yellen said at a July press conference in Beijing. “That’s not the case. That’s not the intention.”
Still, Xie Feng, China’s ambassador to the United States, has warned that Beijing will respond.
“The Chinese government cannot simply sit idly by,” Xie said at the Aspen Security Forum in July. “There’s a Chinese saying: ‘We will not make provocations, but we will not flinch from provocations.’ So China definitely will make our response.”
The measures come as China and the United States are increasingly locked in a technological arms race. Last October, the Commerce Department announced new restrictions on sales to China of advanced technology needed to build high-end semiconductors. The move was aimed at crippling China’s ability to develop its own domestic manufacturing capabilities and slow the development of supercomputers and some weapons, such as hypersonic missiles.
In June, Blinken said in an interview with “Face the Nation” moderator Margaret Brennan that the administration sought to build a”very high fence around a very small piece of land.” He added, “That small piece of land has very sensitive technology that could be used against us. We’re not going to let that happen.”
