President Joe Biden has issued an executive order aimed at implementing stricter regulations on U.S. investment in high-tech Chinese companies. These restrictions will primarily target private equity and venture capital firms and focus on Chinese companies specializing in advanced technologies with military applications, such as quantum computing, artificial intelligence, and cutting-edge semiconductors.
Concerns have been raised that venture capitalists and private equity investors who have stakes in these Chinese companies could provide critical knowledge that would help China surpass the United States in key technologies. Senior Biden administration officials expressed these concerns during a briefing with reporters on Wednesday.
To determine the appropriate extent of these restrictions, the Treasury Department is seeking input from the public and will be accepting comments for the next 45 days. Following this period, a formal rule proposal will be made, providing another opportunity for public comment.
One potential consideration is exempting certain passive investments, including publicly traded securities, index funds, and exchange-traded funds. These investments may be deemed less likely to involve the transfer of knowledge that policymakers find concerning.
The issuance of this executive order reflects a broad bipartisan consensus that China is exploiting American capital and expertise to gain an advantage militarily and economically. It is viewed as a supplementary measure to existing export controls that already prohibit U.S. companies from selling sensitive technologies to China.
The Biden administration recognizes the importance of maintaining a delicate balance between addressing U.S.-China competition and acknowledging the mutually beneficial economic relationship between the two countries.
US Treasury Secretary Janet Yellen Promotes Economic Dialogue with China
Treasury Secretary Janet Yellen recently visited China as part of the Biden administration’s efforts to foster a mutually beneficial economic relationship between the two countries. Yellen emphasized the administration’s stance that it does not seek to decouple from China and believes in the possibility of long-term growth and innovation on both sides.
The White House has engaged in consultations with various stakeholders, including Chinese officials, to inform the crafting of an executive order addressing economic matters. These consultations are part of a comprehensive approach that takes into account input from allies and adversaries alike.
However, anti-China sentiment has been on the rise in Congress and among the American public. Gallup’s polling data reveals that just 15% of Americans view China favorably, marking the lowest approval rating since 1979.
While some experts believe that this executive order on investment restrictions may not be well-received in Beijing, they also note that it is a watered-down version of what could have been implemented. Henrietta Treyz, Director of Macro Policy Research at Veda Partners, suggests that the restrictions are not likely to take effect until the second half of next year and will not apply retroactively.
For equity-market investors, attention should be paid to potential expansions of export control restrictions on sensitive technologies such as semiconductors. Recent reports on this matter have already impacted stock prices of chip companies like Nvidia Corp., Advanced Micro Devices Inc., and Intel Corp.
Treyz highlights that the upcoming release of the Commerce Department’s updated export control restrictions on semiconductors later this month will be a significant development worth monitoring closely.
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