{"id":281812,"date":"2023-08-10T09:27:23","date_gmt":"2023-08-10T13:27:23","guid":{"rendered":"http:\/\/thechinaproject.com\/?p=281812"},"modified":"2023-08-11T12:22:10","modified_gmt":"2023-08-11T16:22:10","slug":"biden-to-bar-new-u-s-money-going-to-some-china-tech-firms","status":"publish","type":"post","link":"https:\/\/thechinaproject.com\/2023\/08\/10\/biden-to-bar-new-u-s-money-going-to-some-china-tech-firms\/","title":{"rendered":"Biden to bar new U.S. money going to some China tech firms"},"content":{"rendered":"<p><!-- Yay, no errors, warnings, or alerts! --><\/p>\n<p>U.S. President Joe Biden on Wednesday signed an executive order <a href=\"https:\/\/www.whitehouse.gov\/briefing-room\/presidential-actions\/2023\/08\/09\/executive-order-on-addressing-united-states-investments-in-certain-national-security-technologies-and-products-in-countries-of-concern\/\">banning some new American investments<\/a> in Chinese advanced technology companies whose products may be used to improve China\u2019s military, intelligence, surveillance, and cyber capabilities.<\/p>\n<p>The order aims to protect against a heightened risk in China that semiconductors, artificial intelligence, and quantum computing tech get transferred from China\u2019s commercial firms to its military, now the largest in the world.<\/p>\n<p>Treasury Secretary Janet Yellen said in July that the coming restrictions were <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2023-07-17\/yellen-says-us-investment-curbs-won-t-fundamentally-hurt-china?sref=2Us5vVZa\">not meant to have a broad impact<\/a> on U.S. investments in China, but rather to protect U.S. national security and address human rights abuses.<\/p>\n<p>The order comes at a time when China\u2019s economy is facing falling prices and struggling to recover from the slowdown caused by the COVID-19 pandemic. In July, China\u2019s ambassador to the U.S., Xi\u00e8 F\u0113ng \u8c22\u950b, said that <a href=\"https:\/\/www.bloomberg.com\/news\/articles\/2023-07-19\/china-to-respond-if-the-us-puts-limits-on-investment-envoy-says?sref=2Us5vVZa\">Beijing would retaliate<\/a> if the U.S. imposed new restrictions on American investment in China.<\/p>\n<p><span style=\"font-weight: 400;\"><div class=\"mailchimp-shortcode\"><div class=\"mailchimp-shortcode--inner\"><h2 class=\"h2\">China news, weekly.<\/h2><p>Sign up for The China Project&#8217;s weekly newsletter, our free roundup of the most important China stories.<\/p>\n<form method=\"post\" id=\"mc-embedded-subscribe-form\" name=\"mc-embedded-subscribe-form\" class=\"validate js-landing-page-form js-subscribe-form\" target=\"_blank\" novalidate>\n        <div class=\"newsletter-hero__email-wrap\">\n            <label for=\"spch-email\" class=\"screen-reader-text\">Enter your email address<\/label>\n            <input class=\"multinews__input multinews__input--email\" id=\"spch-email\" aria-describedby=\"spch-fineprint\" type=\"email\" placeholder=\"Enter your email address\" name=\"email\" required><!-- inline-block fix-->\n            <button class=\"multinews__submit btn prime js-subscribe-form-submit\" id=\"js-multinews-submit\">\n                <t>Subscribe<\/t>\n            <\/button>\n            <div id=\"spch-fineprint\" class=\"multinews__fineprint\">\n\t\t\t\t<p>By subscribing you agree to our <a href=\"\/privacy-policy\/\" target=\"_blank\">privacy policy<\/a>.<\/p>\n\t\t\t<\/div>\n        <\/div><!-- .newsletter-hero__email-wrap -->\n        <div style=\"position: absolute; left: -5000px;\" aria-hidden=\"true\"><input type=\"text\" name=\"\" tabindex=\"-1\" value=\"\"><\/div>\n        <input type=\"hidden\" name=\"newsletter\" value=\"chinaweekly\">\n        <input type=\"hidden\" name=\"tcpr_subscribe_form_nonce\" value=\"07aa6ca7cb\">\n    <\/form><\/div><\/div><\/span><\/p>\n<p>The U.S. Department of the Treasury (DOT), which is directed to execute Biden\u2019s order, will <a href=\"https:\/\/home.treasury.gov\/system\/files\/206\/Outbound-Fact-Sheet.pdf\">accept public comment<\/a> for 45 days before drafting regulations that will implement the order, which also requires U.S. government review of American investments in certain other, unspecified industries.<\/p>\n<p>America\u2019s trade deficit with China stood at $22.8 billion, down $2.1 billion in June, and, as the U.S. enters an election year, Biden and the Democrats and their Republican challengers are jockeying to appear to American voters best positioned to steer the country through a rocky patch in relations with China.<\/p>\n<p>Administration officials previously stressed that the order would be narrowly targeted and the DOT said that it <a href=\"https:\/\/public-inspection.federalregister.gov\/2023-17164.pdf\">is not proposing<\/a> applying the new restrictions on past investments, even in the high-tech sectors it names.<\/p>\n<p>The executive order, which has been in the works for months, does not call for the cessation of U.S. investments in the biotechnology and clean tech sectors, areas <a href=\"https:\/\/www.whitehouse.gov\/briefing-room\/speeches-remarks\/2022\/09\/16\/remarks-by-national-security-advisor-jake-sullivan-at-the-special-competitive-studies-project-global-emerging-technologies-summit\/\">critical to national security<\/a> according to a September 2022 speech by Jake Sullivan, Biden\u2019s national security adviser.<\/p>\n<p>Spokesperson for the Chinese embassy in Washington Li\u00fa P\u00e9ngy\u01d4 \u5218\u9e4f\u5b87 <a href=\"https:\/\/global.chinadaily.com.cn\/a\/202308\/10\/WS64d4360fa31035260b81b4bc.html\">criticized the order<\/a>, saying it would \u201cundermine the interests of Chinese and American companies and investors, hinder the normal business cooperation between the two countries and lower the confidence of the international community in the U.S. business environment.\u201d<\/p>\n<h3>Guarding intangible benefits<\/h3>\n<p>Some observers cast doubt on whether U.S. investment plays a great enough role in China\u2019s innovation ecosystem to make a real difference.<\/p>\n<p>\u201cA lot of foreign direct investment in the Chinese tech sector comes from non-U.S. sources,\u201d Taylor Loeb, consulting firm Trivium China senior analyst, told The China Project. \u201cBut obviously, the biggest amount is coming from domestic sources.\u201d<\/p>\n<p>The executive order made clear that the Biden administration is <a href=\"https:\/\/home.treasury.gov\/system\/files\/206\/Outbound-Fact-Sheet.pdf\">concerned<\/a> that U.S. private equity or venture capital firms might pass to China the sorts of intangible benefits and business know-how helpful to small Chinese companies trying to grow and compete, such as managerial assistance and access to networks of talent.<\/p>\n<p>Of less concern to the administration are investments made through index funds in larger, Chinese publicly traded companies, but Loeb said that the order could nonetheless be the opening salvo of longer-term scrutiny of American investment into China.<\/p>\n<p>\u201cDo I think that in the future the U.S. government is going to bend these kinds of restrictions and ultimately extend them to more public investment? Absolutely,\u201d Loeb said. \u201cThe direction is toward expansion for sure.\u201d<\/p>\n<h3>Going it alone?<\/h3>\n<p>Observers noted that the U.S. leads the way in restricting investment in China, and that Washington\u2019s measures may be less effective if allies don\u2019t buy in.<\/p>\n<p>\u201cOnly South Korea and Japan have outbound investment reviews or restrictions, and they are more narrowly focused,\u201d Mary Lovely, Peterson Institute for International Economics senior fellow, said of the 38 countries in the Organisation for Economic Co-operation and Development (OECD).<\/p>\n<p>The Biden executive order\u2019s proposed measures would have a chilling effect on the already tense U.S.-China relationship, and could hurt U.S. investors and American innovation through cooperation, Lovely said.<\/p>\n<p>\u201cGiven the unpredictable nature of tech development, there is a possibility that the U.S. will miss out on some returns from new innovations,\u201d she said.<\/p>\n<p>Regulations on investment in China may be <a href=\"https:\/\/www.piie.com\/blogs\/realtime-economics\/new-rules-curbing-us-investment-china-will-be-tricky-implement\">difficult to enforce<\/a> as many American investment companies have operations and offices registered overseas, and Chinese tech firms have subsidiaries and employees operating outside China.<\/p>\n<p>\u201cMoney moves easily, so there is always an enforcement challenge,\u201d Lovely said. \u201cBut most companies want to comply with laws enacted for national security purposes, so I expect there to be compliance.\u201d<\/p>\n<h3>Congress wants more<\/h3>\n<p>The executive order did not go as far as some in Congress hoped. Rep. Mike McCaul (R-TX), chair of the House Foreign Affairs Committee, <a href=\"https:\/\/foreignaffairs.house.gov\/press-release\/mccaul-on-executive-order-curbing-us-tech-investment-in-china\/\">criticized the executive order<\/a> for not targeting existing investments and for leaving out restrictions on U.S. investments in Chinese biotech and energy firms.<\/p>\n<p>In an August 3 letter to President Biden, Rep. Mike Gallagher (R-WI), chairman of the House Select Committee on Competition with the Chinese Communist Party, recommended <a href=\"https:\/\/selectcommitteeontheccp.house.gov\/media\/press-releases\/gallagher-calls-president-biden-adopt-restrictions-us-investments-china\">more sweeping measures<\/a> that targeted both private and public U.S. investments in China. The Select Committee\u2019s bipartisan leadership <a href=\"https:\/\/selectcommitteeontheccp.house.gov\/media\/press-releases\/unconscionable-profit-fueling-chinas-military-select-committee-launches\">launched an investigation<\/a> into U.S. investment firms BlackRock, which manages index funds, and MSCI, which provides fund managers with indices and other investment information.<\/p>\n<p>The investigation aims to get a full accounting of the extent to which BlackRock\u2019s and MSCI\u2019s index funds include the stocks of Chinese companies on U.S. government blacklists, such as of firms with links to China\u2019s military or that use forced labor in northwestern China\u2019s Xinjiang Uyghur Autonomous Region.<\/p>\n<p>Under U.S. law, it is not illegal to invest in such companies. Preliminary findings from the Select Committee showed that several of BlackRock\u2019s and MSCI\u2019s index funds together included shares of at least 49 Chinese companies on U.S. government blacklists, companies such as biotech firm BGI Genomics, military aircraft contractor Avicopter PLC, and surveillance equipment manufacturer Dahua Technology.<\/p>\n<p>BlackRock, the world\u2019s <a href=\"https:\/\/www.advratings.com\/top-asset-management-firms\">largest fund manager<\/a> with over $9 trillion in assets under management as of March 2023, and MSCI, are not the only U.S. investment firms that include blacklisted Chinese stocks in their index funds. As of June 2023, Vanguard was number two globally, with $7.6 trillion under management, including an index fund that <a href=\"https:\/\/advisors.vanguard.com\/investments\/products\/vemax\/vanguard-emerging-markets-stock-index-fund-admiral-shares#portfolio\">contained 21 of the 49 blacklisted companies<\/a> identified by the Select Committee.<\/p>\n<p>Several of the blacklisted firms also were included in funds invested in emerging markets and managed by the U.S. investment firms <a href=\"https:\/\/institutional.fidelity.com\/app\/funds-and-products\/2344\/fidelity-emerging-markets-index-fund-fpadx.html\">Fidelity<\/a> ($4.2 trillion under management overall) and <a href=\"https:\/\/www.ssga.com\/us\/en\/institutional\/ic\/funds\/state-street-emerging-markets-equity-index-fund-class-k-sskex\">State Street<\/a> ($3.6 billion overall).<\/p>\n<p>On August 10, Select Committee Chairman Gallagher responded to Biden\u2019s executive order.<\/p>\n<p>\u201cPresident Biden&#8217;s long-awaited executive order is a small step in the right direction but the loopholes are wide enough to sail the PLA Navy fleet through, and it doesn&#8217;t address the passive flows of U.S. money into malign CCP-affiliated companies,\u201d Gallagher said in a statement.<\/p>\n<p>The Biden administration will look past pressure to expand the executive order, Lovely of the Peterson Institute said.<\/p>\n<p>\u201cThe administration has defined a narrow set of activities and is unlikely to change that simply due to the Select Committee,\u201d she said.<\/p>\n<p>In a statement made on Wednesday, Illinois Rep. Raja Krishnamoorthi, the Select Committee\u2019s top Democrat, said that the executive order was an essential step in addressing national security concerns, but that \u201c<a href=\"https:\/\/democrats-selectcommitteeontheccp.house.gov\/media\/press-releases\/ranking-member-krishnamoorthi-statement-executive-order-strengthen-national\">it cannot be the final step<\/a>.\u201d<\/p>\n<p>The names of the Chinese companies blacklisted by the House Select Committee on Competition with the Chinese Communist Party were included in letters sent by the committee to <a href=\"https:\/\/selectcommitteeontheccp.house.gov\/sites\/evo-subsites\/selectcommitteeontheccp.house.gov\/files\/evo-media-document\/2023-07-31-letter-to-blackrock.pdf\">BlackRock<\/a> and <a href=\"https:\/\/selectcommitteeontheccp.house.gov\/sites\/evo-subsites\/selectcommitteeontheccp.house.gov\/files\/evo-media-document\/2023-07-31-letter-to-msci.pdf\">MSCI<\/a>, asking for further details on their funds.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>American investments should not help China develop AI, semiconductors, and quantum computing, Biden says, but Congressional Republicans say his executive order is soft.<\/p>\n","protected":false},"author":19989,"featured_media":281813,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"episode_type":"","audio_file":"","cover_image":"","cover_image_id":"","duration":"","filesize":"","date_recorded":"","explicit":"","block":"","filesize_raw":"","footnotes":"","_links_to":"","_links_to_target":""},"categories":[12902],"tags":[14995,21459,21458,21460,13545,21457,13721],"column":[],"class":[],"coauthors":[18524],"acf":[],"la_post_categories":{"politics-and-current-affairs":"Politics &amp; Current Affairs"},"la_post_tags":{"artificial-intelligence":"artificial intelligence","executive-order":"executive order","investment-ban":"investment ban","quantum-computing":"quantum computing","semiconductors":"semiconductors","us-china-competition":"US-China competition","us-china-relations":"US-China relations"},"content_writeup":{"rendered":"<p><strong>The Serica Annual Gala <\/strong>is an opportunity to celebrate diversity and inclusion, and network with a high-value audience of U.S.-China and AAPI leaders. There will be a pre-event cocktail with Asian street food and culture booths, followed by a live gala and awards dinner. <a href=\"https:\/\/www.sericainitiative.org\/gala\">Get your tickets now<\/a>.<\/p>\n<p><strong>The NEXTChina Conference<\/strong> is the ultimate summit on China in 2023 to network and listen to insights into current affairs from the foremost thinkers on China today. The VIP dinner and Sinica Podcast live show and full-day conference will take place in New York City, with a packed program dedicated to <a href=\"https:\/\/www.nextchinaconference.com\/\">exploring the big questions of China\u2019s role in the world.<\/a><\/p>\n"},"_links":{"self":[{"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/posts\/281812"}],"collection":[{"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/users\/19989"}],"replies":[{"embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/comments?post=281812"}],"version-history":[{"count":0,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/posts\/281812\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/media\/281813"}],"wp:attachment":[{"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/media?parent=281812"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/categories?post=281812"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/tags?post=281812"},{"taxonomy":"column","embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/column?post=281812"},{"taxonomy":"class","embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/class?post=281812"},{"taxonomy":"author","embeddable":true,"href":"https:\/\/thechinaproject.com\/wp-json\/wp\/v2\/coauthors?post=281812"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}