President Joe Biden aims to sign an executive order in the coming weeks that will limit investment in key parts of China’s economy by American businesses, people familiar with the internal deliberations said.
The administration, which has been debating the measure for almost two years, plans to take action around the time of a summit of the Group of Seven advanced economies that’s due to start on May 19 in Japan.
The U.S. has been briefing its G-7 partners on the investment curbs for high-tech industries, and hopes to get an endorsement at next month’s meeting, even though the other countries aren’t expected to announce similar restrictions at the same time, the people said. The likeliest sequence is for the executive order to be signed soon after that expression of international support, one of the people said.
The move marks a new phase in the years-long economic campaign against China that’s already seen the U.S. impose tariffs on Chinese imports under ex-President Donald Trump, and more recently seek to restrict exports of key American technologies. Now, capital flows between the world’s two biggest economies are in the crosshairs.
The U.S. says it’s imposing the curbs on national security grounds – a point emphasized by Treasury Secretary Janet Yellen in a speech Thursday — rather than in an effort to hold back the development of a rival superpower, as Beijing has argued.
Tensions have escalated since Russia’s invasion of Ukraine, a conflict in which the U.S. and China effectively find themselves on opposite sides, and there’s growing concern about a new Cold War that could fracture the world economy into rival blocs.
The executive order will cover the fields of semiconductors, artificial intelligence and quantum computing — focusing on investments where U.S. firms play an active role in management. That includes venture capital and private equity, as well as certain forms of technology transfer and joint ventures. Officials involved in drafting the order say it targets potential new investments, not existing ones.
Some types of investment will be barred outright, while others will require companies to notify the government. Details are set to be outlined in a set of regulations to follow the executive order, and companies will have some time to offer feedback before the order goes into effect.
U.S. officials say the investment limits are intended to choke off critical funding and know-how that could advance China’s military capabilities.
In a speech delivered in Washington Thursday that addressed U.S.-China economic ties, Yellen said the curbs on outbound investment will affect “specific sensitive technologies with significant national security implications.”
“These national security actions are not designed for us to gain a competitive economic advantage, or stifle China’s economic and technological modernization,” Yellen said. The U.S. will pursue its security concerns regarding China “even when they force trade-offs with our economic interests,” and will “engage and coordinate with our allies and partners” over the policies, she said.
U.S. officials have made clear that a unilateral measure wouldn’t fulfill the national security goals because investments in China by other countries could just take the place of the American ones that the administration is about to block.
Treasury Department officials this week briefed their European counterparts on the measure, and the administration has begun sharing information with business leaders too. Once the order takes effect, Treasury will be administering a one-year pilot program that could later be expanded.
A spokesman for the National Security Council declined to comment.
As China’s economy took off in the past three decades, American companies plowed money in as they sought to capture a slice of the world’s fastest-growing major market and lower the cost of production for supply chains.
Cumulative total investment there by U.S. business was worth almost $120 billion at the end of 2021, with about half of that going into manufacturing, according to the Bureau of Economic Analysis.
But the growing consensus in Washington in favor of curbs on China, along with Beijing’s turn to more interventionist policies, may already have dented the enthusiasm of many firms.
Last year, the share of deals by U.S. private equity investors that involved buying stakes in Chinese companies shrank to about one-quarter of what it was a decade earlier, PitchBook data show.
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