US clamps down on China-bound investments

In a move that has further strained the already tense US-China relations, the Biden administration has advanced plans to restrict American investments in key Chinese technology sectors. This decision, announced by the US Treasury Department, has sparked a swift and sharp rebuke from Beijing, highlighting the deepening rift between the world’s two largest economies.

The proposed rules, focusing on curbing investments in AI, quantum computing, and semiconductors, represent the latest salvo in what many observers call a “tech cold war.” These restrictions aim to prevent China from gaining ground in technologies critical to national security, particularly those with potential military applications.

China’s Ministry of Commerce responded with “severe concern and resolute opposition,” accusing the US of politicizing and weaponizing trade and commerce issues. The ministry’s statement urges the US to “respect the rules of a market economy and the principle of fair competition,” calling for cancelling the proposed rules and improving economic relations.

The Chinese government’s strong reaction underscores the significance of these restrictions. Beijing views them as an attempt to hinder China’s technological progress and economic development, a claim it has frequently levelled against Washington in recent years. The ministry went further, asserting that the US move would “pressure the normal development of China’s industry” and disrupt the “security and stability” of global supply chains.

This latest development is part of a broader pattern of increasing technological rivalry between the US and China. The trade dispute began in 2018 under the Trump administration and has already resulted in substantial tariffs on both sides. Additionally, the US has taken steps to restrict the activities of numerous Chinese tech firms within its borders and has encouraged global enterprises to limit their business in China.

US draws new battle lines in tech race with China

As Bloomberg puts it, the recently released Notice of Proposed Rulemaking (NPRM) is essentially one of several bureaucratic steps set in motion by an executive order issued last August. The proposed US rules are comprehensive in scope, covering various types of investments, including equity acquisitions, certain debt financing, joint ventures, and even some limited partner investments in non-US pooled investment funds. 

However, the proposal includes exemptions, such as investments in publicly traded companies and full ownership buyouts, possibly to balance national security concerns with maintaining some level of economic engagement. The focus on AI in these restrictions is particularly noteworthy. 

The US administration has expressed concerns about China developing AI applications for weapons targeting and mass surveillance, highlighting the dual-use nature of this technology and the ethical considerations surrounding its development. This emphasis on AI reflects its growing importance in future technological and economic competitiveness.

The price of this tech tug-of-war

The potential impact of these rules extends far beyond the immediate US-China relationship. They could lead to a further decoupling of the US and Chinese tech ecosystems, potentially accelerating China’s efforts to achieve technological self-sufficiency. Moreover, these restrictions could have ripple effects on international collaborations in scientific research and technological development, potentially slowing progress across the board.

From a geopolitical perspective, this move will likely further complicate US-China relations, which are already strained by trade disputes and human rights concerns. It may also prompt other countries to reassess their policies regarding tech investments and knowledge sharing with China.

The challenge for the Biden administration will be to effectively protect US national security interests without stifling innovation or causing undue economic harm. China’s assertion of its right to take countermeasures adds another layer of uncertainty to an already complex situation. How Beijing responds could have significant implications for global trade and technology development.

(Photo by Chenyu Guan)

See also: US introduces new AI chip export restrictions

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Tags: ai, artificial intelligence, China