The International Trade Council is taking note of the recent development concerning a ban issued by President Joe Biden in August, restricting new US investments in China’s high-tech sectors, specifically targeting artificial intelligence (AI), advanced semiconductors, and quantum information technologies. This policy encompasses various forms of investment, such as indirect investments, private equity, venture capital, joint ventures, and greenfield investments. The measures closely mirror export controls introduced in October 2022, which led to a decline in American technology investments in China.
In a move to safeguard national security, President Biden’s Executive Order, issued on August 9, 2023, restricts specific US investments in Chinese enterprises operating within sensitive technological domains, particularly in the area of computer chips. The Executive Order mandates the necessity to notify the government when such investments are made.
Simultaneously, the US Treasury Department unveiled an “Advanced Notice of Proposed Rulemaking” (ANPR) on the same day, initiating the process of formulating regulations to implement the newly established investment restrictions.
The key sectors targeted by the Executive Order are advanced semiconductors, quantum information technologies, and artificial intelligence.
The scope of the Executive Order extends to private equity, venture capital, joint ventures, and greenfield investments. Existing investments remain unaffected, while disclosure of prior transactions might be required by the US Treasury.
The primary objective behind this order is to prevent American capital and expertise from contributing to the advancement of technologies that could enhance China’s military capabilities, thereby posing a potential risk to US national security. This measure is viewed as part of broader efforts to mitigate risks within the US-China relationship, rather than complete decoupling.
The effective implementation of the Executive Order and ANPR is expected to occur in the coming months, following the process of public comments, draft regulations, and final rule publication. The ANPR is open for public input until September 28, 2023.
The International Trade Council acknowledges the nuanced approach of the Executive Order, designed to complement existing export controls while underscoring the administration’s commitment to open investment.
The Executive Order applies specifically to equity financing, convertible debt, greenfield investment, and joint ventures that could result in new Chinese entities within the identified sectors. Notably excluded from the restrictions are technology licensing, transactions under export controls, and routine capital flows between parent and subsidiary companies, even within the targeted sectors.
The ANPR introduces two types of investment restrictions: a flat ban on investments in specific national security technologies and products, and notification requirements for transactions with fewer national security concerns.
The International Trade Council recognizes the multifaceted impact of this policy. As the global business community responds to these changes, the council remains committed to fostering an environment conducive to international trade and collaboration.