Sources familiar with the deliberations have revealed that the Biden administration is set to unveil a new set of restrictions on American investments in specific advanced sectors within China. These measures, aimed at safeguarding national security, are expected to receive a strong response from Beijing. This move marks an important step taken by the United States to limit outbound financial flows in the midst of an ongoing economic standoff with China, with potential implications for future investment controls between the two nations.
Under these restrictions, private equity and venture capital firms will be prohibited from directing investments into certain high-tech areas such as quantum computing, advanced semiconductors, and artificial intelligence. The main objective is to prevent the transfer of American funds and expertise to China. Additionally, the regulations will require firms involved in various Chinese industries to disclose their investment activities, enhancing transparency in financial interactions between the two countries.
While the White House has chosen not to comment, officials from the Biden administration have repeatedly emphasized that these proposed restrictions solely target specific sectors associated with Chinese military and surveillance ambitions. The goal is to counter security threats while maintaining legitimate business interactions with China. Emily Benson, Director of the Project on Trade and Technology at the Center for Strategic and International Studies, has affirmed the importance of these measures in combating the inadvertent fueling of China’s military capabilities through American capital.
It is important to note that despite these actions, the Biden administration has been actively working to stabilize relations with China. High-level discussions have taken place, including Treasury Secretary Janet L. Yellen’s engagement with Chinese counterparts. Officials stress that the targeted steps are solely aimed at preserving U.S. national security and are not intended to harm China’s economy. Simultaneously, the administration is diversifying suppliers outside of China to reduce the risk of critical supply chain dependencies, along with gradually escalating restrictions on the export of certain technologies to China.
While other countries like Taiwan and South Korea have their own restrictions on outbound investments, the U.S. government has historically left financial flows between the two largest economies largely unaffected. In recent years, investments between the U.S. and China have declined, but venture capital and private equity firms have sought collaborations to access China’s flourishing tech sector.
However, this proposed measure has received criticism from congressional Republicans and others who argue that it is both overdue and insufficient in curbing U.S. funding of Chinese technology. Concerns have also been raised about its potential impact on the U.S. economy. While some believe it might disadvantage the U.S. due to ongoing technology partnerships between other countries and China, critics argue that China possesses abundant capital resources.
Nicholas R. Lardy, a nonresident senior fellow at the Peterson Institute for International Economics, has highlighted that the U.S. has contributed less than 5 percent of China’s inbound direct investment in recent years. He emphasized that unless other significant investors adopt comparable restrictions, these measures may not effectively achieve their goals.
To garner support for these measures, the Biden administration has engaged with allies and encouraged them to implement similar restrictions. Discussions on this matter have taken place during the Group of 7 meetings in Japan. Ursula von der Leyen, President of the European Commission, has particularly advocated for the European Union to introduce its own set of measures.
In the coming months, businesses and organizations will have an opportunity to provide feedback on these rules before they are finalized. The process will require close coordination with Silicon Valley and Wall Street as officials navigate the complexities of enforcing these measures while balancing national security and economic interests.