Biden bans US investment in China’s high-tech sector

The long-awaited order has been justified as a way of protecting US national security by preventing US capital and expertise from supporting the military modernisation of China, The New York Times first reported.

The measure will largely affect private equity and venture capital firms, as well as joint ventures with Chinese groups. 

The order is focused on three main investment areas: semiconductors and microelectronics, quantum information technologies and certain AI systems. In addition to prohibiting specific investments, the policy will also require firms to notify the government regarding investments in high-tech sectors. 

In a briefing with reporters, senior administration officials said the measure was a “national security action, not an economic one”, stressing that the US remained committed to open investment.

The Treasury said it anticipates exempting “certain transactions, including potentially those in publicly traded instruments and intracompany transfers from US parents to subsidiaries”.

The Chinese foreign ministry said the country was “strongly dissatisfied” with and “resolutely opposes the US’s insistence on introducing investment restrictions on China”. 

A statement from the Chinese Commerce Ministry said: “This seriously deviates from the market economy and fair competition principles that the US has always advocated. It affects the normal operation and decision-making of enterprises and undermines the international economic and trade order.”

Liu Pengyu, a spokesperson for the Chinese embassy in Washington, highlighted that the White House’s claims that the US was not seeking to hurt China’s economy or separate the two countries did not match its actions.

“We urge the US side to honour its words,” Pengyu said. 

The order follows a letter to Congress in which Biden declared the need to deal with the threat of advancement by countries such as China “in sensitive technologies and products critical to the military, intelligence, surveillance or cyber-enabled capabilities”.

Senate Democratic leader Chuck Schumer celebrated the decision, saying: “For too long, American money has helped fuel the Chinese military’s rise. Today the US is taking a strategic first step to ensure American investment does not go to fund Chinese military advancement.” 

Republicans have said the Biden order does not go far enough. Republican senator Marco Rubio called the proposal “laughable”, saying it is "riddled with loopholes” and that it “explicitly ignores the dual-use nature of important technologies, and fails to include industries China’s government deems critical”.

The US has restricted trade with China since at least 2019, when the Trump administration banned Huawei from buying vital US technology. In August, the US also prohibited the export of four technologies tied to semiconductor manufacturing, declaring that they were “vital to national security”, and signed a “historic” bill aimed at boosting the domestic production of semiconductors. 

In May, China made its first major move in the trade war by telling its operators not to use Micron chips in certain infrastructure projects due to national security concerns.

The new rules will now enter a public comment period, which is expected to further clarify what kinds of investments are off-limits.