Biden signs order to ban certain tech investments in China

By Karen Freifeld and Andrea Shalal

NEW YORK/WASHINGTON (Reuters) -President Joe Biden on Wednesday signed an executive order that will narrowly prohibit certain U.S. investments in sensitive technology in China and require government notification of funding in other tech sectors, senior administration officials said.

The long-awaited order authorizes the U.S. Treasury secretary to regulate certain U.S. investments in Chinese entities in three sectors: semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems, the officials said.

The move could fuel tensions between the world’s two largest economies, although U.S. officials insisted the prohibitions were intended to address “the most acute” national security risks and not to separate the two countries’ highly interdependent economies.

“We’re pursuing a policy of de-risking with respect to the PRC by taking targeted national security actions, not decoupling our economies,” one official said.

The order is aimed at preventing American capital and expertise from helping develop technologies that could support China’s military modernization and undermine U.S. national security. It is focused on private equity, venture capital, joint venture and greenfield investments.

Most investments captured by the order will require the government be notified about them, sources have said. Some transactions will be prohibited. Details were not immediately available.

Biden administration officials have stressed for months any restrictions on U.S. investment in China will be narrowly targeted.

The regulations will only affect future investments, not existing ones, an administration official told Reuters.

It is expected to be implemented next year, a person briefed on the order said, after multiple rounds of public comment, including an initial 45-day comment period.

Regulators plan to issue an advanced notice of proposed rulemaking to further define the scope of the program and a comment period to solicit public feedback before making a formal proposal, officials said.

It is unlikely to cover passive or securities investments, the first person said.

Sources previously told Reuters investments in semiconductors that will be restricted are expected to track export control rules for China issued by the U.S. Department of Commerce in October.

Emily Benson of the Center for Strategic and International Studies (CSIS), a bipartisan policy research organization, said she expects investments in artificial intelligence to be prohibited to military users and uses, and that other investments in the sector will only require notification to the government.

Benson said the burden will fall on the administration to determine what AI falls into the military category.

“They will have to draw a line of what constitutes a military application of AI, and to define AI,” said Benson, director of CSIS’s project on trade and technology.

The regulations concerning AI are still in development, the person briefed on the order said. The person said the same was also true for quantum computing but that it was expected to prohibit certain sensors and other things related to the technology.

The person added that there could be potential exemptions related to universities and research.

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