“Why the Biden administration wants to limit U.S. investments in Chinese tech”, PBS NewsHour

Published August 9, 2023

By Laura Barrón-López and Dan Sagalyn, Aug 9, 2023

The Biden administration released a long-awaited executive order aimed at curbing China’s military development. These new rules mark the first step by the U.S. government to clamp down on overseas investments by American firms in three high-tech sectors. Laura Barrón-López discussed the plan with Chris Johnson of China Strategies Group.

Read the Full Transcript

  • Amna Nawaz:The Biden administration released a long-awaited executive order today aimed at curbing China’s military development. These new rules mark a first step by the U.S. government to clamp down on overseas investments by American firms.Laura Barrón-López has the story.
  • Laura Barrón-López:The new executive actions limit investments in China by private equity and venture capital firms in three high-tech sectors, quantum computing, artificial intelligence, and semiconductors and microelectronics.It would also require firms to disclose investments in other Chinese industries not restricted under the president’s order.Here to discuss is Chris Johnson. He had a 20-year career in the U.S. intelligence community, where he focused on China. Now he runs his own consulting firm, China Strategies Group.Chris, thanks so much for joining us.What is the significance of this executive order limiting American developments in China? And how will it be implemented?Christopher Johnson, President and CEO, China Strategies Group: Well, I think its main significance is that it’s finally managed to get out the door.This is something that the administration has been working on for nearly two-and-a-half years now of its tenure, and then, of course, if we count the time of basically the entire Trump administration, where they were also thinking about such an executive order and working on it then. So we’re talking about a sum total of six-and-a-half years in the making.So it’s quite significant in that regard. It’s important as well, obviously, because it’s the next step, really, in the process that we have seen under the Biden administration of trying to control Chinese ability to develop some of these core technologies, most specifically, things that might have military application, semiconductors, in particular.That’s where the executive order is going to be the strictest in terms of actual prohibitions of investments, and then also these new and emerging technologies, of course, of artificial intelligence and quantum computing, as you said.
  • Laura Barrón-López:The administration has made clear that these actions are meant to stop China from using U.S. technology to modernize their military and intelligence capabilities.How much American money is actually going to develop those technologies in China? And will these new restrictions actually impact China’s ability to advance their technology?
  • Christopher Johnson:Yes.Well, on the scale of total investment that the Chinese are making in these core technological areas, the actual U.S. dollar flow into those investments is relatively small. The Chinese government, of course, is pouring a ton of money into all three of these areas, largely through its industrial policies, which are of great concern to the U.S.So, the actual amount of money, by comparison, that the U.S. is putting in is small. But it’s not really the money necessarily that I think the administration and other folks who are looking at this closely, especially on the Hill, have been focused on. It’s really the knowledge, the special capabilities, the sort of things that a U.S. venture capital or other firm can bring to the table in terms of expertise that might actually help the Chinese make advances in the technology itself.So, in other words, to facilitate making the investment that the U.S. investor is making profitable, they are willing to share their ecosystem, if you will, of technological and other expertise. And that’s really what the concern is. So, while the actual dollar amount is small, that’s been the concern.And in terms of the ability to impact Chinese developments, it certainly will not ease their ability to do so. One of the things that’s been most challenging for them is, they want to obviously have access to foreign direct investment coming into these technologies, and especially those expertise categories that I mentioned a moment ago, coming their direction.They will continue, of course, to pursue these technologies, because they’re critical, in their minds, for not just their military advancement, but also their economic development in the 21st century, because, obviously, these are the three core technologies that are looking like they will define the knowledge-based economy of this century.
  • Laura Barrón-López:Senior administration officials told us today that it took a thoughtful and deliberative process to get to this executive order.Could you explain some of that process that they underwent to actually reach this point?
  • Christopher Johnson:Yes, absolutely.And I think the administration deserves a lot of credit for this. First of all, there was extensive consultation with affected parties, venture capital firms, other investing firms. And they took into account a lot of their feedback in the process.And, obviously, as the executive order tells us, there will be a comment period as well, which will be quite lengthy. So that will be another opportunity for the administration to engage with affected parties, most specifically industry and most specifically the semiconductor industry in the United States, because that’s the institution that, as I mentioned earlier, will be the most affected, that sector.So they have taken a very judicious and deliberative approach. Some critics argue it’s been too judicious and too deliberative, in the sense that the executive order only requires what they call a sort of notice-and-go system for areas that are not prohibited under the executive order.So, that is basically an entity wish — a U.S. person entity wishing to make an investment has to report to the Treasury Department about what they’re doing. But it’s not a proper screening mechanism, like had been advanced earlier, especially in some possible congressional legislation, wherein they would have to screen that investment and decide whether it is allowed or prohibited.Instead, it is just a notification process. And some critics have said that is too — too loose.
  • Laura Barrón-López:How do you expect China to view these new restrictions? And is there wide expectation that they will retaliate?
  • Christopher Johnson:There definitely is. I think we should expect them to retaliate, in part because they have told senior U.S. officials that they will. When Secretary Yellen, our Treasury secretary, was visiting China, that message was definitely conveyed.It’s been conveyed to Secretary of State Blinken and other senior U.S. officials. So the Chinese have made clear that this is one of many of the sort of red lines. In March of this year, President Xi Jinping at a — in comments at a legislative session said that the United States and the West was acting actively to sort of suppress, contain and encircle China.And, since then, we have seen them take more deliberative retaliatory actions. So, one instance is the banning of sale of the semiconductor, U.S. semiconductor for Micron’s chips to many Chinese customers. We have seen them react with restrictions on certain rare earth meddles that are critical in the semiconductor space.So, they have kind of shifted gears. We have seen a step change from this sort of largely rhetorical responses to actual retaliation that does matter. And I would expect to see something similar like that in this instance.
  • Laura Barrón-López:Chris Johnson of China Strategies Group, thank you so much for your time.
  • Christopher Johnson:My pleasure. Thank you.
FILE PHOTO: Chinese and U.S. flags flutter outside the building of an American company in Beijing

Watch the Full Episode PBS NewsHour from Aug 09, 2023

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Laura Barrón-López

Laura Barrón-López is the White House Correspondent for the PBS NewsHour, where she covers the Biden administration for the nightly news broadcast. She is also a CNN political analyst.

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Dan Sagalyn

As the deputy senior producer for foreign affairs and defense at the PBS NewsHour, Dan plays a key role in helping oversee and produce the program’s foreign affairs and defense stories. His pieces have broken new ground on an array of military issues, exposing debates simmering outside the public eye.

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