© Reuters. FILE PHOTO: US President Joe Biden speaks during a signing event for the CHIPS and Science Act of 2022, on the South Lawn of the White House in Washington, US, August 9, 2022. REUTERS/Evelyn Hockstein/File Photo
By Karen Freifeld and Alexandra Alper
WASHINGTON (Reuters) – The Biden administration plans to completely ban investment in some Chinese tech companies and increase scrutiny of others, three sources said, as part of its plan to crack down on the billions that American companies have invested in sensitive Chinese sectors.
The ban is expected to apply to some investments linked to chip production, two of the sources said. The upcoming rules are likely to follow sweeping new restrictions the United States placed on exports of American chips, chip-making tools and artificial intelligence (AI) supercomputers, among other technologies, to China in October, the sources also said.
The plan will be laid out in an executive order that the White House is expected to unveil in the coming months. China hawks in Washington blame US investors for transferring valuable capital and know-how to Chinese tech companies that could help improve Beijing’s military capabilities.
The White House declined to comment.
“No restriction or crackdown can stop the pace of China’s scientific and technological development,” a spokesman for the Chinese embassy in Washington said in a statement. “Unwarranted restrictions by US politicians on normal trade and economic cooperation between China and the US will only… miss development opportunities.”
Relations with China have soured after one of its surveillance balloons was spotted over the United States, leading China watchers to anticipate more punitive measures from Washington against Beijing in the near term. That could include the long-awaited outbound investment order.
In addition to the ban on some investments, a wide range of transactions would be considered “tell and go,” requiring investors to simply inform the government of their plans, without risk of disapproval.
The Biden administration would give the industry a chance to weigh in on the proposed rules before the plan goes into effect, a source said.
While the details of the order could change, the phased approach shows the Biden administration is trying to use a scalpel to rein in US investments in China after the unilateral implementation of October’s export restrictions in China angered the US allies and companies.
It also illustrates the government’s desire to learn more about US investment in Chinese tech startups. A report by a Georgetown University think tank earlier this month showed that US investors include the investment units of chipmakers. intel corporation (NASDAQ:) and Qualcomm (NASDAQ:) Inc accounted for nearly a fifth of investments in Chinese AI companies between 2015 and 2021, transactions valued at $40.2 billion.
The executive order, previously expected in the fourth quarter of last year, was further delayed in part to avoid antagonism from Beijing ahead of Secretary of State Antony Blinken’s planned February trip to China. That trip was later postponed due to the Chinese spy balloon.
National security adviser Jake Sullivan first pointed to the problem in July 2021 when he said US investment flows into Chinese technology could harm national security and undermine export controls.
Peter Harrell, a White House official who left the administration late last year, told a House committee earlier this week that he “strongly” recommended that the administration establish “a strictly designed regime” that would require the Disclosure of investments in certain key Chinese technologies with the ability to “limit or block the small number of transactions likely to pose serious national security risks.”
Efforts to incorporate an outbound investment screening plan into legislation failed last year in Congress. However, a spending bill signed into law in December gave the US Departments of Treasury and Commerce $10 million each to identify what it would take to implement a program to address national security threats from the “outward investment” in certain sectors. Their reports are due by the end of this month.
