The Biden administration will ban US investment into quantum computing, advanced chips and artificial intelligence sectors in China, as it ratchets up efforts to ensure the Chinese military does not benefit from American technology and capital.
President Joe Biden on Wednesday issued an executive order establishing the prohibitions, which will largely affect private equity and venture capital firms as well as US investors in joint ventures with Chinese groups.
A senior US official said it would create a “very targeted” programme that would focus on the three sectors that the Biden administration has also marked out in a series of other technology-related measures aimed at China. It will require firms to inform the government of investments into the three sectors even in cases where the prohibitions will not apply.
“We want to provide bright-line guidance on what is prohibited and separately what is notified,” the official said.
The outbound investment order is the latest in a number of actions designed to limit Chinese access to advanced technology in what US national security adviser Jake Sullivan has called a “small yard, high fence” strategy.
Washington has said the rule, which will not take effect until next year, will protect US security. But Beijing has countered that previous US actions are designed to crimp its technological progress.
A second US official said: “This executive order protects our national security interests in a narrowly targeted manner while maintaining our longstanding commitment to open investment.”
The first official added that the administration did not anticipate expanding the order to other areas such as biotechnology but said it included a requirement to review the affected industries within a year.
The latest move threatens to hurt efforts to resurrect top-level engagement that stalled after a suspected spy balloon flew over the US earlier this year. Biden and President Xi Jinping agreed at the G20 in Bali in October to try to stabilise relations and make sure competition did not veer into conflict.
The order comes as Biden prepares to update sweeping export controls introduced in October to make it harder for Chinese groups to source or manufacture cutting-edge semiconductors and chipmaking tools.
The US has been working with its allies in Asia and Europe to forge as much consensus as possible about the need to restrict investment in China. But the effort has been complicated because other countries are worried that the US move goes too far and, in some cases, because of constraints in their legal systems.
US officials have expressed hope that some countries will act once Washington has led the way. But even some close allies appear to be balking. Japanese officials have privately made clear that Tokyo does not intend to revise legislation governing outbound China investments.
However, US officials said the UK and Germany, and also the European Commission, had expressed interest in developing similar outbound investment regimes.
Republicans criticised the order for not tackling more kinds of investment. Nikki Haley, one of the GOP presidential contenders, said it was “not even a half measure”.
“To stop funding China’s military, we have to stop all US investment in China’s critical technology and military companies, period,” she said.
Another US official said private equity and venture capital had been targeted because they could introduce Chinese groups to other technology companies and experts. “What we are trying to get at here is the intangible benefits,” the official said. “Ultimately China doesn’t need our money.”
Article first appeared on the Financial Times.