US limits outbound investments in semiconductors, AI, and quantum tech in China

The Biden Administration announced an executive order to require investors to receive approval before investing in China's sensitive tech sectors, such as AI, semiconductors, and quantum technology. The executive order, expected to be in force in 2024, is narrower than previously thought, signaling a cautious approach towards further restrictions against China by the US.

The White House announced an executive order on addressing US investments in certain national security technologies and products in countries of concern, which currently include only China and its special administrative regions of Hong Kong and Macau.

According to the press release, the White House said countries of concern are engaged in comprehensive, long-term strategies that direct, facilitate, or otherwise support advancements in sensitive technologies and products that are critical to such countries' military, intelligence, surveillance, or cyber-enabled capabilities.

The White House said these countries eliminate barriers between civilian and commercial sectors and military and defense industrial sectors, with rapid advancement in semiconductors and microelectronics, quantum information technologies, and AI capabilities by these countries significantly enhancing their abilities to conduct activities that threaten the national security of the US, adding that countries of concern are exploiting or have the ability to exploit certain US outbound investments.

Details of the executive order are to be worked out after public notice and comment and are expected to be effective in 2024. The executive order will require US persons to notify the Department of the Treasury of any transaction by a foreign entity, including partnership, association, trust, joint venture, corporation, group, subgroup, or other organization, controlled by US persons. An unnamed official told Reuters that the executive order will affect future investments, not existing ones.

The investment requirement, which does not include biotechnology and energy, is narrower than previously expected, reports Bloomberg.

Data from the Ministry of Commerce of China shows that China's inward FDI, in CNY terms, declined year-on-year in April and May by 7.83% and 11.96%, respectively. For the past 12 months, China has seen five months of declines in inward FDI amid COVID-19 measures and a supply chain relocation. Still, Bloomberg data shows that US investments in computers, semiconductors, and software have increased in deals and values as investors are betting on both sides.

Source: Bloomberg, August 2023; including equity stake and MAs

Source: Ministry of Commerce of China, August 2023