Washington DC [US], August 9 (ANI): In a move that could rankle Beijing, the Biden administration is planning to issue new restrictions on American investments in certain advanced industries in China to protect ‘national security threats’, New York Times reported on Wednesday citing people familiar with the deliberations. This measure would be one of the first significant steps by the US amid an economic clash with China to clamp down on outgoing financial flows. It could also set the stage for more restrictions on investments between the two countries in the years to come.
According to NYT, the restrictions would bar private equity and venture capital firms from making investments in certain high-tech sectors, like quantum computing, artificial intelligence and advanced semiconductors, in a bid to stop the transfer of American dollars and expertise to China. The measure would further require the firms making investments in a broader range of Chinese industries to report that activity, giving the government better visibility into financial exchanges between the US and China.
Although, the White House declined to comment, as per NYT. Biden officials have emphasised that outright restrictions on investment would narrowly target a few sectors that could aid the Chinese military or surveillance state as they seek to combat security threats but not disrupt legitimate business with China. “There is mounting evidence that US capital is being used to advance Chinese military capabilities and that the US lacks a sufficient means of combating this activity,” NYT quoted Emily Benson, the director of the project on trade and technology at the Centre for Strategic and International Studies, a Washington think tank.
Notably, the Biden administration has recently sought to calm relations with China, dispatching Treasury Secretary Janet L Yellen and other top officials to talk with Chinese counterparts. Even in recent speeches, Biden officials have argued that targeted actions taken against China are aimed purely at “protecting US national security”, not at damaging the Chinese economy.
At the same time, the Biden administration has continued to push to “de-risk” critical supply chains by developing suppliers outside China, and it has steadily ramped up its restrictions on selling certain technologies to China, including semiconductors for advanced computing, New York Times reported. The Chinese government has long restricted certain foreign investments by individuals and firms. Other governments, like Taiwan and South Korea, also have restrictions on outgoing investments.
But beyond screening Chinese investment into the United States for security risks, Washington has left financial flows between the world’s two largest economies largely untouched. Just a few years ago, American policymakers were working to open up Chinese financial markets for US firms.
The investments between the US and China have fallen sharply in the past few years, as the countries severed other economic ties. But venture capital and private equity firms have continued to seek out lucrative opportunities for partnerships, as a way to gain access to China’s vibrant tech industry, NYT reported. However, the planned measure has already faced criticism from some congressional Republicans and others who say it has taken too long and does not go far enough to limit US funding of Chinese technology.
In July, a House committee on China sent letters to four US venture capital firms expressing “serious concern” about their investments in Chinese companies in areas including artificial intelligence and semiconductors. Other leaders have argued that the restriction would mainly put the US economy at a disadvantage, because other countries continue to forge technology partnerships with China, and Beijing holds no shortage of capital, NYTreported.
NYT cited Nicholas R Lardy, a non-resident senior fellow at the Peterson Institute for International Economics, who said the US was the source of less than 5 per cent of China’s inbound direct investment in 2021 and 2022. “Unless other major investors in China adopt similar restrictions, I think this is a waste of time,” Lardy said. “Pushing this policy now simply plays into the hands of those in Beijing who believe that the US seeks to contain China and are not interested in renewed dialogue or a ‘thaw.’”
Biden officials have also talked with allies in recent months to explain the measure and encourage other governments to adopt similar restrictions, including at the Group of 7 meetings in Japan in May. Since then, Ursula von der Leyen, the president of the European Commission, has urged the European Union to introduce its own measure.
The administration is expected to give businesses and other organizations a chance to comment on the new rules before they are finalized in the months to come, as per New York Times.
Claire Chu, a senior China analyst at Janes, a defence intelligence company, said that communicating and enforcing the measure would be difficult and that officials would need to engage closely with Silicon Valley and Wall Street. “For a long time, the US national security community has been reticent to recognize the international financial system as a potential warfighting domain,” NYT quoted Chu as saying.
“And the business community has pushed back against what it considers to be the politicization of private markets. And so this is not only an interagency effort, but an exercise in intersectoral coordination” she added. (ANI)
