The long-awaited Biden administration plan to restrict American individuals and companies from investing in semiconductor and artificial intelligence technologies in China is about to enter the implementation phase.
This plan stems from an executive order issued by Biden in August last year, which prohibits overseas investments in entities controlled by China, involving technologies deemed crucial for US national security.
On August 9th last year, President Biden signed the Executive Order on Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern, limiting US entities’ investments in China’s semiconductor and microelectronics, quantum information technology, and artificial intelligence sectors. It also requires US investors to report investments falling under restricted categories to the US Treasury Department. This move further pushes the decoupling of US-China investments.
On June 21st this year, the US Treasury Department issued a notice of proposed rulemaking (NRPM) updating the specific implementation details of the executive order and soliciting further feedback from the public.
According to Nikkei Asia report on Tuesday, the foreign investment screening mechanism is aimed at curbing new external investments by US investors in three crucial technology areas for national security. The 60-day feedback period issued by the US Treasury Department has ended, now entering the final step before the plan’s implementation. The Treasury Department and other federal agencies need to study the feedback received and make final modifications.
For investors, a key issue to clarify is: which US Limited Partnerships (LP) investing in non-US funds can receive exemptions? Currently, one version of the rules provides exemptions for LP investments of $1 million or less, while another version offers exemptions for LP investments not exceeding 50% of the relevant fund.
The Biden administration emphasizes its focus on a specific set of technologies, and the rules themselves indicate that the proposed transactions covered are defined to narrow the scope of application.
Members of the Alternative Investment Management Association (AIMA) based in London, including hedge fund managers and private creditors from over sixty countries, expressed in their submissions that due to China’s revised Securities Law strengthening information sharing and reporting requirements, “conducting due diligence on Chinese companies is difficult,” suggesting that the proposed rules are “infeasible in many cases.”
Kher Sheng Lee, the Asia-Pacific Regional Managing Director of AIMA, stated, “The consensus is clear. The trajectory is set, with both parties steadfast in supporting targeted policies to restrict investments in China. The focus now is on to what extent and in what form these measures will be implemented.”
Park, Head of Risk Management at Crompton Global, a consulting firm in Washington, said, “If Trump wins the election, some of his spokespeople have discussed expanding the rules to more areas and types of investors.”
Critics of the Chinese Communist Party have been advocating for broader restrictions on China in dual-use military and civilian technology.
A spokesperson for the House Committee on Strategic Competition between the United States and the Chinese Communist Party said, “US overseas investments have advanced the CCP’s authoritarian agenda, while undermining our nation. Restricting China (CCP) in key strategic areas such as national defense, critical minerals, and advanced pharmaceuticals is not only necessary for national security but also a moral responsibility.”
As competition with China becomes a bipartisan concern in Congress, investors, business advisors, and financial consultants are preparing for the next administration to continue taking a tough stance against China, potentially leading to changes in US restrictions on foreign investments.