US-China Tech War Intensifies As President Biden Signs Executive Order On Curtailing Investments Into China

Bhuvan Krishna

Aug 10, 2023, 12:45 PM | Updated 12:45 PM IST

Joe Biden (left) and Xi Jinping (Representative Image).
Joe Biden (left) and Xi Jinping (Representative Image).
  • The order aims to curb China's potential to leverage USA's investments in its tech firms, to bolster its military.
  • While US authorities have previously indicated the impending executive order on investments in China, it remains uncertain how the financial markets will perceive this.
  • United States President Joe Biden has enacted an executive order to control and obstruct high-tech investments from the US flowing into China.

    This move reflects the escalating rivalry between the world's two largest economies.

    This directive includes advanced computer chips, micro-electronics, quantum information technologies, and artificial intelligence.

    High-ranking officials from the administration have clarified that this initiative is driven by national security objectives, not economic ones, and the areas it encompasses are deliberately limited.

    The order aims to curb China's potential to leverage USA's investments in its tech firms to bolster its military, while also maintaining significant trade levels crucial for both countries' economies.

    The USA and China seem to be progressively entangled in a geopolitical contest characterised by conflicting ideologies.

    Despite officials from the Biden administration maintaining that they have no intention to "decouple" from China, the USA has restricted the export of advanced computer chips and sustained the increased tariffs implemented by former president Donald Trump.

    Meanwhile, China has initiated crackdowns on foreign corporations.

    President Biden has proposed that China's economic growth is faltering and its global aspirations have been moderated due to the US revitalising its alliances with Japan, South Korea, Australia, and the European Union.

    The administration engaged with allies and industry leaders in formulating the executive order.

    At a fundraising event in California in June, President Biden conveyed a complex message to donors, "Be concerned about China, yet do not let this concern consume you."

    According to the officials who provided a preview of the order, China has manipulated US investments to bolster their weapons development and military modernisation.

    The newly imposed restrictions were designed to not destabilise China's economy, but to supplement last year's export controls on advanced computer chips, which had provoked a reaction from Chinese officials.

    The Treasury Department, tasked with overseeing these investments, will put forth a proposed rulemaking that aligns with the presidential order and will be open to public commentary.

    The order's objectives include requiring investors to inform the US government about certain transactions with China and implementing restrictions on some investments.

    The focus of the order, officials explained, is on areas like private equity, venture capital, and joint partnerships where the investments could potentially provide countries of concern, such as China, with expanded knowledge and military capabilities.

    J Philip Ludvigson, a former treasury official and current lawyer, described the order as a preliminary framework with potential for expansion in the future.

    The response to President Biden's order on 9 August indicated a stronger stance against China.

    Congressman Raja Krishnamoorthi, a Democrat from Illinois, stated that the order was a crucial progression, but it shouldn't be the last step.

    Nikki Haley, a Republican presidential candidate and former US ambassador to the United Nations, argued that Biden should have taken a more assertive approach, stating, "All US investment in China's critical technology and military companies must be halted — no exceptions."

    Following the downing of a Chinese spy balloon that had drifted over the United States, President Biden referred to Chinese President Xi Jinping as a "dictator".

    He also highlighted the tension over Taiwan's status, stating that China had been exerting pressure concerning its independence.

    While US authorities have previously indicated the impending executive order on investments in China, it remains uncertain how the financial markets will perceive this — as a gradual measure or a further rise in tensions during a delicate period.

    Elaine Dezenski, a senior director at the Foundation for Defense of Democracies, stated, "The impact of this on the market could be significantly decisive."

    She added that US and international corporations are already reassessing the potential risks of investing in China.

    The chilling effect of Beijing’s 'national security' and 'anti-espionage' laws, which hinder regular and essential corporate due diligence and compliance, could potentially escalate into a severe downturn in US foreign direct investment.

    Meanwhile, China has expressed its 'serious' concerns regarding the US directive on curtailing foreign investment, particularly in sensitive technology.

    The Chinese administration expressed its hope that the US will uphold the laws of the market economy and the principle of unbiased competition. It also urged the US to avoid "unnecessarily obstructing global economic and trade collaborations."

    Bhuvan Krishna is Staff Writer at Swarajya.

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