US fences off sensitive technology

The US authorities are increasing the number of measures that limit technological cooperation with China. A new executive order by President Joe Biden gives the US Treasury the right to prohibit investments by US citizens and companies controlled by them in sensitive high-tech sectors in China, Hong Kong and Macau. So far, we are talking about microelectronics and semiconductor production, quantum technologies and artificial intelligence technologies, but it is assumed that the list can be expanded. The new measures will complement previously imposed restrictions on exports to China and on incoming investments from this country.

White House announces tightening controls on U.S.-linked investment in China’s tech sectors by decree President Joe Biden, restrictions will affect investments in microelectronics and semiconductor production, quantum technologies and artificial intelligence technologies. The presidential administration said the measures are aimed at protecting national security and technologies critical to the next generation of military innovation.

Restrictions were introduced on the principle of “small yard with a high fence” (small yard, high fence), the statement said.

The order allows the US Treasury and other agencies to establish a regime for controlling the transactions of US citizens in these sectors in countries of “concern” (we are talking about China, Hong Kong and Macau). This is necessary to “prevent exploitation” of US investments that contribute to the successful development of sensitive technologies. Such technologies could contribute to the creation of complex weapons systems and lead to the destruction of cryptographic protection (quantum computing), the administration said. It is expected that the US Treasury and other agencies will determine which transactions in these sectors will fall under the notification procedure, and which will be completely prohibited. Such a regime will become mandatory for all US citizens, as well as for foreign companies controlled by them.

Now the restrictions apply to the export of high-tech products to China, as well as incoming Chinese investments (a special “screening” has been introduced for them), and access to the American financial market is also limited for dozens of Chinese companies. Investment controls will increase export restrictions, while exceptions may be made for investments in exchange-traded securities.

The Chinese Foreign Ministry has already accused the American side of imposing “technological hegemony” and warned that the decisions taken will harm global value chains. It is stated that China will “resolutely” protect its interests, but it is not said that any retaliatory measures will be taken. Note that the decree was adopted after Treasury Secretary Janet Yellen’s visit to China in early July, following which she announced her intention to adhere to “healthy competition with the ability to protect her interests, and not the line of dividing the economies.”

The European Commission said that they would analyze the US ban on investments in sensitive sectors, as this also affects the economic security of the EU countries.

The economic security strategy published by the commission in June, aimed at supporting technological development through the introduction of new protective measures, however, also suggests the possibility of imposing restrictions on capital flows – in addition to the “stress test” of critical supply chains, the EC then proposed to tighten controls not only for incoming, but also for outgoing investments, primarily in dual-use technologies. These measures, according to the commission, should reduce dependence on countries that can potentially use economic ties for political purposes, while the European Commission promised to increase trade only with countries that share the EU’s concerns.

Tatyana Edovina