U.S. stops tech investment as China threatens national security

On August 9, U.S. president Joe Biden signed an executive order to begin the process of limiting high-tech U.S.-based investments going toward China in the fields of artificial intelligence (AI), quantum technology, as well as semiconductors.

Biden’s move is one out of a slew of measures adopted by his administration to curb China’s access to the most advanced technologies in the world. The president’s latest decision comes amid his attempt to promote his blueprint to revitalize American manufacturing after years of downsizing. 

The aforementioned restrictions that are slated to materialize next year come amid deteriorating Sino-US ties as both superpowers attempt to outdo the other on economic, technological and military fronts. 

Past Biden administration’s measures that have taken effect mean that America already forbids or limits many technological exports to China. The goal of this new executive order is to stop the flow of U.S. funds into China, thus preventing the latter from enhancing its own domestic capabilities and undermining American national security.

In particular, U.S. private equity and venture capital firms would be affected under this latest series of measures, instead of the wider stock market, sources cited by The New York Times claimed.

U.S. tech investments like quantum computing, advanced chips, and artificial intelligence would be restricted. Other investments would have to be reported to the U.S. government, which could use that information for more future bans. 

Biden’s latest order will empower the Treasury Secretary to regulate U.S. investments into Chinese technologies regarded as critical to national security, based on statements from senior administration officials.

The president, in the order, proclaimed a national emergency associated with the “unusual and extraordinary threat” from “countries of concern” that rely on classified technologies to boost their military and intelligence capabilities. The order then continued, saying that U.S. investments “risk exacerbating this threat.”

“The Biden administration is committed to keeping America safe and defending America’s national security,” one official said in an August 9 press call. “That includes appropriately protecting technologies that are critical to the next generation of military innovation.

“China has a stated goal to acquire and produce key sensitive technologies that directly support (its) military modernization-related activities such as weapons development, and has exploited U.S. investments to develop domestic military and intelligence capabilities.”

The official added that the new executive order will focus on a “narrow subset” of investments in AI, quantum information technologies, and semiconductors and microelectronics to address a “critical gap” in national security.

“This is a national security action, not an economic one,” the official maintained. “This executive order protects our national security interests in a narrowly targeted manner, while maintaining our longstanding commitment to open investment.”

As a result, the aforementioned rules will empower the administration with enhanced tools for halting U.S. private equity and venture capital flow to Chinese entities that might boost the Chinese military.

Alongside Biden’s order, the official continued, the Treasury Department will concurrently publish an advance notice for new proposed rules that would ban investment in entities that participate in activities linked to these three domains and require information pertaining to investments into similar technologies.

Although the Treasury still has to undergo a potentially long process to give notice and receive feedback on its suggested rules, administration officials remain optimistic that strong bipartisan desire in Congress to “meaningfully regulate outbound investments” would set up the most robust protocols possible.

That being said, the same official pointed out that America would not adopt the policy of “decoupling” but instead one of “de-risking” from China. 

“We are pursuing a policy of de-risking with regard to China, by taking targeted national security actions,” the official said. “We are not decoupling our economies, and this policy reflects that approach.”

Additionally, the official noted that the Treasury’s proposed rules were made after consulting America’s allies with dozens of meetings, and would showcase a “unity of purpose” on the global arena. 

For years, U.S. tech companies and venture capital firms have been investing in entities linked to entities associated with the military wing of the Chinese Communist Party (CCP), with little interference from the federal government.

“The pace China is moving and the trajectory that they’re on will surpass Russia and the United States if we don’t do something to change it,” John Hyten, then-vice chair of the Joint Chiefs of Staff, said. “It will happen.”

Michael Sekora, former head of Project Socrates, a Reagan-era Defense Intelligence Agency program to propel America to victory during the Cold War, commented: “China understands that exploiting technology more effectively than the competition is the foundation of all competitive advantage.”

The problem, Sekora continued, is that rather than leveraging key technologies, America has permitted the Chinese regime to co-opt and exploit technology to its advantage. 

“The only way to effectively counter a technology strategy is with a more effective technology strategy,” he said. “China’s technology strategy, like all effective technology strategies, relies upon positioning and adroit maneuvering in the exploitation of technology to generate and maintain the required competitive advantage in the marketplace, on the battlefield, and throughout the political world.” 

Despite China’s threat to American national interests, Washington has sought to emphasize that America’s restrictions on investments towards China are narrowly concentrated. During her visit to China earlier this year, Treasury Secretary Janet Yellen portrayed the then-pending order as “highly targeted.” 

However, observers have pointed out that businesses would most likely interpret the law more strictly, particularly on national security matters. Those crafting the law also seemed to fumble when trying to define what constitutes AI. Most likely, investors will try to avoid any activities that may be similar to those on the banned list.

In the meantime, the bipartisan House Select Committee on the CCP is conducting investigations into several U.S. venture capital firms that it suspects are bankrolling China’s development of AI and encouraging its military modernization.

In a letter declaring the probes, committee chairman Mike Gallagher (R-Wis.) and ranking Democrat Raja Krishnamoorthi (D-Ill.) contended that the CCP is boosting its military by U.S. research and investments.

“China is actively seeking out and using advancements in AI to perpetrate human rights abuses and enhance its military capabilities,” the letter states. “It is likewise using advancements in quantum computing and semiconductor manufacturing to support the People’s Liberation Army.”

Beijing is also stealing key technologies including AI and quantum cryptography systems, which will have crucial military importance in the coming years, according to the U.S. Ambassador to China Nicholas Burns.

“Technology is in many ways the heart of the competition,” Burns said at a June meeting of the Global Leadership Coalition. “All of those technologies are going to be militarized.”

Burns also claimed that the CCP has been participating in the “consistent and persistent theft of intellectual property” to expedite “forced technology transfer” from America, making it increasingly challenging for Washington and the CCP to peacefully compete, while having consequences for U.S. security in the region both in the near and long terms.

“We have a very competitive, difficult, often contentious relationship,” Burns said. “We’re certainly competing for military power and security in the Indo-Pacific.”

Retired Rear Adm. Mike Studeman said that America would have to explore beyond investing in military infrastructure to compete with China. 

“We need to be looking at all forms of influence that will prevent a combat environment or a crisis that will, in fact, be devastating for the globe,” Studeman said during a talk at the Hudson Institute.

Furthermore, the CCP has been testing the limits of American influence abroad, using economic policies to promote its version of illiberalism on a global scale, former national security adviser Robert O’Brien asserted. 

“The CCP is relentless in trying to change the way that we live our lives,” O’Brien said during a talk at the Hudson Institute.

“They’re trying to change the liberty (we have), to change the way we live, and to change the way the world is organized. And that’s dangerous.”

O’Brien said the CCP was operating “across every region of the world” to decrease the influence of democratic nations and establish diplomatic and economic means of coercing smaller countries.

“They talk about ‘win-win,’ but in reality, it’s ‘win-lose.’ China wins, and everyone else loses,” O’Brien said. “In Xi Jinping’s eyes, the only way China can win is if everyone else loses.”

Photo credit: iStock/ undefined undefined

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