The United States opens a new front against China in the technological war with investment restrictions

The US plan to impose controls and restrictions on investments by American companies in the field of technology to “countries of concern” seems to be a candidate for the new front of technological and economic competition with China.

Under the plan, announced yesterday by US President Joe Biden in a presidential decree, Washington will restrict venture capital investments and stocks by US companies in three critical technology areas, including semiconductors and microelectronics, quantum information technologies and certain systems. of artificial intelligence.

Biden described the plan as a “national emergency” and said the restrictions “are aimed at addressing the threat posed by countries of concern that develop sensitive technology and products that provide military, intelligence, surveillance and cyber capabilities.”

It should be noted that in the decree, only the Hong Kong and Macao Special Administrative Regions and China were mentioned as “country of interest”.

The new restrictions will prevent US companies from investing in Chinese companies through mergers, acquisitions, equity stakes, venture capital and other means in the three technology areas.

In addition, companies will not be able to invest directly in these sectors from scratch or through joint ventures, and they will not be able to provide debt financing tools that can become partnerships.

INTERNATIONAL INVESTMENTS WILL BE INSPECTED

On the other hand, the regulation provides for the establishment of a review mechanism to supervise the investments of US companies abroad. In this context, it is expected to implement the “Foreign Investment Review Board”, which was included in the first drafts of the Chip and Science Law, which was approved last year.

According to reports in the national press, US officials, in their regulatory briefings, emphasized that venture capital and equity investments require the sharing of experience, and that such investments must be controlled to prevent the transfer of sensitive technologies. . .

A White House official reported that the regulation was “aimed at preventing US capital from supporting countries hostile or interested in developing national security technologies.”

The official assessed that establishing a review mechanism in these areas would give the United States “a new tool to protect its national security.”

“CHINA DOES NOT NEED OUR MONEY”

Another White House official pointed out that the export controls brought to China in the chip industry are not enough on their own and that investments are the main technology transfer tool, saying: “China does not need our money. It is a net capital exporting country. What they lack is know-how, and the transfer of this is often closely related to a certain type of investment, ”he said.

He stressed that the regulation will not affect existing “passive investments” by US companies, such as shares in publicly traded companies in China.

The Washington administration plans to hold a 45-day consultation process for the regulation. In this process, the opinion of interested parties within the country and allied countries will be sought to improve and clarify the rules.

While the restriction issues are expressed in general terms in the decree, it is a matter of curiosity how the details will be shaped. For example, it is not clear which “certain” technologies are at issue in the investment restriction in “certain artificial intelligence systems”.

In the field of artificial intelligence, productive AI models such as ChatGPT, dubbed the “grand model”, are likely to be targeted. The Washington administration had previously banned the export to China of high-tech A100 and H100 chips, which provide data storage and processing power to such models from US microchip maker Nvidia.

SIMILAR ‘SMALL GARDEN WITH HIGH FENCES’

Biden administration officials such as Commerce Minister Gina Raimondo and Treasury Secretary Janet Yellen have stressed the need to keep investment and trade restrictions narrow and specific in sensitive sectors so as not to completely damage economic relations with China.

White House National Security Adviser Jake Sullivan also stressed that the US technological and economic restrictions on China are aimed at “reducing risk,” not “severing economic ties.”

Speaking of risks, US officials point to the drawbacks of building China’s military might and the associated growing threat to national security, as well as electronic and cyber espionage capabilities, and the development of surveillance technologies that could intensify oppression and human rights violations. against ethnic and religious minorities.

While trying to eliminate risks, Washington tries to avoid trends that could completely disrupt economic relations with China.

A White House official stated that they briefed the Chinese ambassador to Washington, Şie Fıng, about the deal and explained the US administration’s approach, which aims to provide strong protection in a narrow area containing only critical technologies, with the analogy of “little garden with high fences”.

CHINA REACTS TO THE DECISION

Chinese officials, on the other hand, assessed the US move as a step toward “severing economic ties.”

Liu Pingyu, a spokesman for the Chinese embassy in Washington, said in a statement that the investment restrictions will seriously harm the interests of Chinese companies, US companies and investors doing business in China, and negatively affect normal economic relations between Both countries.

“We call on the United States to keep its word, honor President Biden’s commitment not to sever economic ties with China, and stop suppressing and suppressing China’s economic development,” spokesman Liu said.

In a written statement, China’s Ministry of Commerce also said that the US administration’s restriction on foreign investment by its own companies is “an act aimed at breaking economic ties and cutting industry and supply chains.” supply, under the pretext of reducing risks in the field of investment”. .”

“This action is a serious departure from the principles of fair competition and market economy upheld by the United States,” the statement said. It will affect the normal business decisions of companies, disrupt the international economic and trade order, and seriously damage global industry and supply chains.” the evaluation was done.

COMES ON THE ANNIVERSARY OF THE CHIP LAW AND SCIENCE

The decree, which coincides with the anniversary of the Chip and Science Act, approved in the US last year, once again revealed Washington’s intention to curb China’s technological capacity in this area with investment controls after the restrictions for export in the chip industry.

The US Congress passed the “Chips and Science Act” on July 27-28, 2022, which provides $280 billion worth of incentives for domestic chip production. The law, signed by Biden on August 9, 2022, included $52 billion in direct support to boost semiconductor production in the country, as well as a 25 percent tax cut over four years for newly established factories.

The law’s requirement that companies wishing to take advantage of incentives not develop the technological capacity of their manufacturing facilities in China pointed to Washington’s goal of limiting Beijing’s influence in this area.

On the other hand, the Bureau of Industry and Security (BIS) of the US Department of Commerce announced on October 7 a regulation that consists of restrictions on the access of Chinese manufacturers to advanced chip technologies.

Under the regulation, US companies were required to license materials, machinery and hardware needed for chip production to China, while 31 companies, including China’s largest memory chip maker, Yangtze Memory Technologies (YMTC) , and the largest semiconductor hardware manufacturer, Naura Technology Group, and the institution was placed on the Export Control List.

On December 12, the ministry reported that it had placed 36 Chinese companies on the export ban list, including 21 companies operating in the AI ​​chip industry, such as YMTC.

US INVESTMENTS IN CHINA DROPPED FOR 5 YEARS

US direct investment in China has tended to decline in the so-called “trade war” process, which began with the mutual increase in customs tariffs in certain areas between the two countries in 2018 and continued with blockade steps in the field of the technology.

According to data from the international risk analysis and consulting firm Rhodium Group, US direct investment in China has declined from an average of $14 billion a year in 2005-2018 to $10 billion since 2018. By 2022, $8.2 billion in direct investment fell to the lowest level in 20 years.

Venture capital investments by US companies and investors in China peaked at $14.4 billion in 2022 and fell to $1.3 billion in 2022.

Analysts predict that Biden’s decree is just the beginning, that capital controls will become the new frontier of economic and technological competition between the US and China. (AA)