Biden signs China investment ‘ban’ criticized by Republicans for having loopholes.

President⁤ Biden Signs Executive Order​ to Restrict U.S. Investments in ⁣China’s‌ Technology

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, restrictions that critics slammed as toothless because of their limited focus and vulnerability to loopholes.

The long-awaited order ​authorizes the U.S. Treasury secretary to prohibit or restrict⁣ certain U.S. investments in ‌Chinese entities in three sectors: semiconductors and microelectronics, quantum information​ technologies,⁣ and certain artificial intelligence systems.

Biden said in a letter to⁢ Congress he was declaring a national emergency‌ to ‌deal with‌ the threat of ⁣advancement by countries like China “in sensitive technologies and products critical to the ⁤military, ⁢intelligence, surveillance, or cyber-enabled capabilities.”

The proposal​ targets investments in Chinese companies developing software⁣ to design chips ‍and tools ⁢to‌ manufacture them. The United States, Japan,‌ and the⁣ Netherlands dominate those fields, and the Chinese government has been ⁤working to build up homegrown alternatives.

Republicans‌ said ⁢the Biden order ‌did not go far⁢ enough.

House Foreign Affairs‌ Committee⁣ chairman⁤ Michael⁣ McCaul praised the move to restrict new outbound investments in ⁢China but said‍ “the ‍failure⁣ to include existing⁣ technology ‍investments as well ⁤as sectors like ⁢biotechnology and energy is​ concerning.”

Republican ⁣senator ‌Marco Rubio said the Biden administration’s “narrowly ‍tailored proposal is almost ‍laughable. It ⁤is riddled with loopholes, explicitly ignores the dual-use nature of important technologies, and fails to include industries China’s⁤ government deems ⁣critical.”

The restrictions will take at least a year to take ⁣effect and ⁣must first‌ pass through multiple rounds of ​public comment, including ⁤an initial 45-day comment‌ period.

During⁢ a ​trip to China last month, Treasury⁢ Secretary Janet Yellen said ‍ Biden’s restrictions would not “affect ⁤U.S. investment ​broadly in China” or “have a fundamental impact on affecting the investment‌ climate⁤ for China.”

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.

Senate ⁣Democratic leader Chuck Schumer praised Biden’s order, saying⁣ “for too⁣ long,‌ American money has helped fuel the Chinese military’s​ rise. Today the ⁤United States is taking a strategic first step to ensure American investment ​does not go to fund Chinese military advancement.” He ⁤says ⁣Congress must enshrine ‌restrictions in‍ law and refine them.

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. Some​ transactions will be prohibited. ‍The Treasury said it anticipates ‌exempting‌ “certain transactions, including potentially those in publicly-traded instruments‍ and intracompany transfers from U.S.​ parents⁣ to ​subsidiaries.”

A spokesman for⁤ the Chinese ‌Embassy in Washington did not immediately respond to a request for comment ⁣on Wednesday but the embassy said Friday the United States “habitually politicizes technology and trade issues‍ and uses them⁢ as a tool and weapon in the⁤ name of national security.”

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

The Biden‌ administration said it engaged with U.S. allies and partners ​as it developed the restrictions ⁣”and will continue coordinating closely with them to advance​ these goals.” It added the executive order reflects discussions with the Group of Seven countries.

Regulators plan to issue an advance 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.

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.

(Reporting by⁤ David Shepardson, Andrea Shalal, Stephen ⁢Nellis, Max Cherney, and Karen ⁣Freifeld; additional reporting by Idrees ⁣Ali; Editing‌ by Lincoln Feast and Jonathan Oatis)