A long-discussed initiative by US lawmakers to limit investment in certain sectors of Chinese industry this week took the form of an executive order signed by Joseph Biden. It should be noted that the provisions of the decree will be finalized and come into force only next year.
This form of introducing bans on investment in the PRC economy for American citizens and investment funds somewhat upset some American parliamentarians, as they called these steps “half-measures”. Going forward, the U.S. Treasury Department, which will be the primary enforcer of the proposed restrictions, will clearly outline which investments in the Chinese economy will be specifically prohibited and which will only require investor notification. In fact, US President Biden has only ordered the relevant ministry to form rules to control the investment of economic actors in three sectors of the Chinese economy: manufacturing of advanced semiconductor components, quantum computing and artificial intelligence.
American companies and private investors will not be able to buy shares in joint ventures with Chinese partners and invest in building enterprises in China. It should be noted that various index funds and investors that indirectly finance such activities in China will be able to invest in local assets. American lawmakers want to ban only those forms of financing Chinese companies that promise obvious benefits for the latter.
In fact, only three geographical areas of investment control have been designated at this stage: the PRC, Hong Kong and Macau, although the latter two are Special Administrative Regions of the PRC. In the future, US investment control rules could be expanded to cover other “untrusted countries”.
As explained by representatives of the US Treasury Department, it was originally planned to prohibit investment in the capital of Chinese companies that are engaged in the development of software for the design of semiconductor components, equipment for their production and actual production of chips, but only in using a certain set of modern lithographic technologies. In the field of advanced lithography, US equity investment in Chinese chipmakers was intended to be notified but not prohibited.
The quantum computing segment will be banned from US investment without special exemptions, but the artificial intelligence sector still leaves room for discussions by lawmakers. The important criterion will be the presence of a threat to US national security from the development of artificial intelligence systems by Chinese companies, and in non-obvious cases, instead of a ban, everything can be limited to an investment notification. All these points will have to be spelled out in the final version of the rules by next year.
It is important to note that these sanctions will not be retroactive and only future investments will be regulated. US officials have expressed hope that US foreign policy allies will also introduce similar restrictive measures, but Japan has yet to announce such plans, although the UK, Germany and the EU have generally expressed some solidarity with the US.
