U.S. to curb investment in China

The United States is considering imposing restrictions on American dollars used to finance the development of advanced technologies within China that could be used in military conflicts. The Biden administration has been preparing to curb investments that U.S. firms can make in China, particularly in areas like advanced computing. The measures are largely complete and could be released within two months. The Treasury Department has been communicating with other governments, including the European Union, to prevent them from filling in the gap left by the United States and providing similar financing to China.

A recent incident involving a spy balloon has increased fears about national security threats posed by the Chinese government. Lawmakers have warned the White House that if investment restrictions are not implemented, they will propose their own. During a hearing on the security threat from China, representatives from both parties emphasised the need to eliminate U.S. capital flowing into areas that support China’s military and human rights abuses.

The details of the executive order remain unclear, but it is expected to require companies to report more information to the government about their investments in adversarial countries and could potentially prohibit investments in certain sensitive areas such as quantum computing, advanced semiconductors, and certain artificial intelligence capabilities with military or surveillance applications. However, the biotechnology sector is expected to be excluded from the restrictions, at least initially.

Some supporters of investment restrictions argue that it will fill in a gap in the economic barriers that the United States has set up with China, while others believe it will harm the competitiveness of the U.S. economy and put U.S. companies at a disadvantage compared to their foreign competitors.

Several investment firms with exposure to China, including Blackstone, KKR, Sequoia, Carlyle Group, Bain Capital, Silver Lake, General Atlantic and Warburg Pincus, have expressed their views on possible regulation. According to tracking by Rhodium Group, U.S. investors carry out about 3,000 transactions per year in China, including both foreign direct investment and venture capital deals, with about 500 of those valued at over $1 million. The U.S.-China Business Council and the U.S. Chamber of Commerce have expressed concerns about the proposals, with the U.S.-China Business Council stating that getting the details right on outbound investment screening is easier said than done.