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U.S. President Joe Biden Signs Executive Order to Restrict Investments in Chinese Technology

On July 25, 2023, U.S. President Joe Biden delivered remarks on access to mental health care at the White House. During the speech, President Biden highlighted the importance of addressing national security risks associated with advancements in technology, particularly in China. To combat this threat, President Biden signed an executive order on August 9 that aims to restrict certain U.S. investments in sensitive technology in China. This order also requires government notification of funding in other technology sectors.

The executive order authorizes the U.S. Treasury secretary to prohibit or restrict investments in Chinese entities operating in three key sectors: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems. President Biden declared a national emergency in his letter to Congress, emphasizing the need to counter countries like China in the development of technologies critical to military, intelligence, surveillance, and cyber capabilities.

One of the main targets of this proposal is investments in Chinese companies involved in software for chip design and manufacturing tools. Currently, the United States, Japan, and the Netherlands dominate these fields, while China aims to establish its own alternatives. While the order could strain relations between the U.S. and China, U.S. officials have asserted that the restrictions are focused on addressing the most significant national security risks and not intended to separate the highly interdependent economies of the two countries.

Senate Democratic Leader Chuck Schumer commended President Biden’s order, noting that American funding has inadvertently supported the Chinese military’s growth for too long. He emphasized the need for Congress to solidify these restrictions in law and refine them. However, Republicans argued that the executive order did not go far enough.

House Foreign Affairs Committee Chairman Michael McCaul praised the move to limit new investments in China, but expressed concern about the exclusion of existing technology investments as well as sectors such as biotechnology and energy from the restrictions.

The executive order aims to prevent American capital and expertise from contributing to the development of technologies that could bolster China’s military capabilities and undermine U.S. national security. It primarily targets private equity, venture capital, joint venture, and greenfield investments. Under the order, most investments will require government notification, with some transactions being prohibited. The Treasury Department expects to exempt certain transactions, including publicly-traded instruments and transfers within U.S. parent-subsidiary companies.

While the Chinese Embassy in Washington has not yet responded to the order, it previously criticized the United States for politicizing technology and trade matters. Republican Senator Marco Rubio criticized the narrowly tailored proposal, pointing out loopholes and the failure to include industries deemed critical by the Chinese government. Conversely, Democratic Senator Bob Casey praised President Biden’s order for addressing urgent concerns and reducing risks from countries like China.

It is important to note that the executive order will only affect future investments and not impact existing ones, according to an administration official. The Biden administration engaged with U.S. allies and partners during the development of these restrictions and plans to continue coordinating with them to advance shared goals. Implementation of the order is expected next year after multiple rounds of public comment, including an initial 45-day comment period.

Regulators intend to issue an advance notice of proposed rulemaking to further define the scope of the program. This will be followed by a comment period to gather public feedback before making a formal proposal. Sources have indicated that restrictions on semiconductor investments will align with the export control rules for China issued by the U.S. Department of Commerce in October. As for artificial intelligence (AI), certain military users and uses are expected to be prohibited, while other investments in the sector will only require government notification.

Emily Benson from the Center for Strategic and International Studies (CSIS) predicts that the administration will have the responsibility of determining which AI applications fall under the military category. Defining AI and drawing clear boundaries for military use will be essential in implementing the order effectively. The regulations concerning AI and quantum computing are still being developed and the order is likely to prohibit certain sensors and technology related to quantum computing. Some exemptions may apply to universities and research.

In conclusion, President Biden’s executive order aims to restrict certain U.S. investments in Chinese technology, particularly in semiconductors, quantum information technologies, and artificial intelligence. The order intends to address significant national security risks associated with advancements in these areas and prevent American resources from aiding China’s military modernization. While the executive order has garnered support from some, others argue that it lacks sufficient scope. The order is set to be implemented next year, following public comment and further clarification of the regulations. The AI legalese decoder can assist in determining what AI applications fall under the military category, aiding the administration in drawing clear boundaries.

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