Biden clamps down on Chinese tech investment

The United States and China have invested years and tens of billions of dollars in each other’s technology. Now, after months of escalating operations against semiconductors, social media apps and more, Washington is trying to sever ties at both ends.

While U.S. Secretary of State Anthony Blinken is due to visit China later this month in an effort to defuse rising tensions between the two geopolitical rivals, the Biden administration is drafting an executive order to impose stricter U.S. The regulations hope to invest in companies in the Chinese technology sector. Limiting China’s ability to leverage foreign investment — particularly in key and emerging technologies such as artificial intelligence, quantum computing and electronics — has become a focus of Washington’s efforts to decouple from Beijing amid growing bipartisan stance toward China.

According to the China Global Investment Tracker released by the American Enterprise Institute (AEI), the United States is the main recipient of Chinese investment between 2005 and 2022, with over $190 billion invested in various sectors. During that time, the tech sector was valued at more than $23 billion, second only to real estate and transportation. While big Chinese investments in the U.S. have declined in recent years, there has been some disparity in China stealing key investments as successive administrations have adopted a more hostile stance toward China and Beijing’s zero-COVID policy has led to a pandemic-induced economic slowdown And pathway experts and officials say the technology remains unplugged.

The United States and China have invested years and tens of billions of dollars in each other’s technology. Now, after months of escalating operations against semiconductors, social media apps and more, Washington is trying to sever ties at both ends.

The Biden administration is struggling even as U.S. Secretary of State Anthony Blinken is due to visit China later this month in an effort to defuse rising tensions between the two geopolitical rivals. to draft An executive order will impose stricter rules on U.S. companies seeking to invest in China’s technology sector. Limiting China’s ability to leverage foreign investment — particularly in key and emerging technologies such as artificial intelligence, quantum computing and electronics — has become a focus of Washington’s efforts to decouple from Beijing amid growing bipartisan stance toward China.

Between 2005 and 2022, the United States is the main recipient of Chinese investment, absorbing more than $190 billion According to the China Global Investment Tracker released by the American Enterprise Institute (AEI), China’s investment in different industries. During that time, the tech sector was valued at more than $23 billion, second only to real estate and transportation. While big Chinese investments in the U.S. have declined in recent years, there has been some disparity in China stealing key investments as successive administrations have adopted a more hostile stance toward China and Beijing’s zero-COVID policy has led to a pandemic-induced economic slowdown And pathway experts and officials say the technology remains unplugged.

“I think so [investment] It’s going down for different reasons, but in technology they’re as active as ever,” said Michael Brown, a venture partner at investment firm Shield Capital who formerly headed the U.S. Department of Defense’s Defense Innovation Unit. Astutely, if they accept Chinese capital, if they want to sell to the US government, their market options will be severely limited. “

U.S. companies have also invested heavily in China’s technology sector over the past decade, with Report From 2015 to 2021, U.S. investors participated in investments worth more than $40 billion in 251 Chinese artificial intelligence companies, according to news this week from Georgetown University’s Center for Security and Emerging Technologies.U.S. venture capitalists also poured billions of dollars into Chinese tech startups last decade, according to data From Rhodium Consulting and the National Committee on U.S.-China Relations, the communications and biotech sectors were major recipients.

But like many existing restrictions on Chinese investment, an executive order targeting outbound deals is likely to have limited impact.

Its lifespan may be short as there may be phasic phases and [Joe] Biden probably won’t be president in 2025,” said Derek Scissors, a senior fellow who tracks global Chinese investment at AEI. “The tech industry prefers [executive order] A new law that will outlast Congress, especially since any [order] will be narrow.The industry doesn’t like anything at all, but [order] Will be implemented in 2024 may be a relief. “

The Biden administration expanded its scope last September with another executive order to track down inward Chinese investment The Committee on Foreign Investment in the United States Interagency (CFIUS) includes deals “outside the defense industrial base,” including areas such as artificial intelligence, quantum computing and biotechnology. But rooting out Chinese investment is easier said than done, requiring a great deal of coordination among myriad agencies across all branches of government against an adversary that has already shown incredible resilience. As the concerns surrounding TikTok’s data collection have shown, it’s not always simple to define which technologies might pose a potential threat to national security.

“The definition of critical and emerging technologies is amorphous in nature,” said Akhil Iyer, vice president at Shield Capital. “It’s really hard to define what’s relevant to national security now and in the future.”

Some U.S. officials and congressional aides remain concerned that CFIUS does not have broad enough powers to deter malign Chinese investments, especially when it targets emerging technologies. CFIUS scrutiny remains largely autonomyand even where mandated by legislation, they typically do not cover early-stage investments in emerging technologies.

“The Bureau of Industry and Security’s inability to identify emerging and foundational technologies means that CFIUS cannot get such notifications through the front door,” said an aide to the House Foreign Affairs Committee, referring to the Commerce Department’s bureau. “Acquisition of emerging technologies could fly under the watchful eye of CFIUS, leading to a potentially dangerous diversion to hostile nations.”

In Silicon Valley and the broader U.S. tech community, the government has made a concerted effort to raise awareness of the dangers of confrontational capital. The Pentagon is particularly focused on hardware startups, which tend to receive less venture capital funding than their software counterparts and are more likely to produce technology that can be used by the defense sector — making them ripe targets for China. DoD initiatives such as the recently established Office of Strategic Capital and the National Security Innovation Capital (NSIC) aim to fund emerging companies whose technologies have potential defense applications.

“There is not a sufficient amount of private venture capital flowing into very early-stage hardware startups in the U.S.,” said NSIC director Tex Schenkkan. NSIC estimates Less than 30% of U.S. private venture capital is invested in hardware companies, and less than 10% of that is invested in early-stage.

“So early stage hardware companies are desperate for funding — they need to hit the next big milestone, and like good entrepreneurs, they want to build their companies and realize their dreams,” he added. “And they often have access to investors who may not even know where the money is coming from, but who are very willing to put it in, and then it turns out that’s really just access to the technology.”

But those initiatives have been plagued by funding shortfalls. NSIC, which currently consists of Schenkkan, three contractors and a part-time special government employee, has received $20 million in funding over the past two fiscal years and has invested in 12 start-ups. During the fiscal year, it received $15 million.

Meanwhile, the Office of Strategic Capital Has not yet received congressional funding.

“We really need it to become more important,” Schenkkan said.

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