President Joe Biden on Wednesday issued an executive order banning U.S. investments flowing into China’s technology sectors, including semiconductors and microelectronics, quantum computing and artificial intelligence.
The order would prohibit private equity and venture capital investments flowing into sectors that Biden said help Beijing gain a military advantage by developing “new applications that pose significant national security risks, such as the development of more sophisticated weapons systems, breaking of cryptographic codes, and other applications that could provide these countries with military advantages.”
In addition to capital flows, Chinese companies getting U.S. investments benefit from other intangible gains such as managerial know-how, market access and links to broader financial networks, the order said. The ban applies to China and its special administrative regions of Hong Kong and Macao.
Declaring a national emergency to address the threat, Biden directed the Treasury secretary, in consultation with the Commerce Department and other departments and agencies, to formulate rules requiring private equity and venture capital firms to notify the U.S. government of outbound investments. The rules would also specify the types of investments and technology areas that are prohibited.
The order noted that China eliminates “barriers between civilian and commercial sectors and military and defense industrial sectors, not just through research and development, but also by acquiring and diverting the world’s cutting-edge technologies, for the purposes of achieving military dominance.”
The executive order stems from a congressional directive inserted into the 2023 omnibus spending bill that asked the Treasury and Commerce departments to study how to track U.S. capital flows into tech sectors in China and other countries. The departments told Congress in February that it would cost about $10 million to set up such a program.
That appropriations provision was spearheaded by Rep. Rosa DeLauro, D-Conn., the top Democrat on the House Appropriations Committee who led the effort in the last Congress.
The order banning investment flows to China is the latest step by the administration to choke off Beijing’s ability to challenge the U.S. on the technology front. The administration also has imposed a series of export controls on high-end semiconductor chips going to China, and has said chip manufacturers seeking federal grants and subsidies for U.S. manufacturing can’t expand operations in China.
Some key members of Congress welcomed the order.
“Today’s announcement is an essential step forward in addressing the very real national security concerns from the CCP, but it cannot be the final step,” said Rep. Raja Krishnamoorthi, D-Ill., referring to the Chinese Communist Party. Krishnamoorthi is the top Democrat on the House Select Committee on the Chinese Communist Party.
“We have seen the impact the October export controls have made in ensuring American investment and technology are not fueling the CCP’s military modernization and human rights abuses, and I am confident these measures to address outbound investment in key strategic technologies will build on that progress,” Krishnamoorthi said referring to last year’s announcement of export controls.
Rep. Michael McCaul, R-Texas, chair of the House Foreign Affairs Committee said he was “pleased to see the Biden administration restrict new outbound investments in China.” But McCaul said the order should have included restrictions on investments going to China’s biotech and energy sectors as well.