Biden's real target on Chinese investment restrictions
In his new executive order banning investment in certain Chinese sectors, President Biden is trying to restrict more than just U.S. dollars from flowing into China's technology industry.
Why it matters: He also wants to prevent the transfer of American know-how from top private equity and venture capital firms to China's semiconductor, artificial intelligence and quantum computing sectors.
- At the same time, top officials didn't want to impose overly broad prohibitions on investing in China's economy.
- The result is an executive order that is narrowly focused on restricting investments into three specific industries that could give China's People Liberation Army a global advantage over the U.S. and its allies.
"China doesn't need our money. They are a net capital exporter," said a senior administration official. "The thing they don't have is the know-how."
- "Capital is the hook, but the focus is what comes along with those kinds of capital investments," a second administration official told Axios.
Driving the news: After months of review and consultation with allies, lawmakers and private investors, Biden's new executive order will create two categories: investments that will be prohibited; and investments that will require notification.
- The administration will use the rule-making process, run by the Treasury Department, to further define the line between prohibited and permissible investments in the quantum, semiconductors and artificial intelligence industries.
- "I want to be clear, this is a national security action not an economic one," said a third administration official. "This executive order is aimed at narrowly protecting our national security interests."
The big picture: The new restrictions, which have been telegraphed by administration officials for most of the year, represent a new chapter in U.S. -China relations.
- They threaten to upend the incremental progress the Biden administration has made this summer in repairing relations after a Chinese spy balloon that flew over the U.S. was downed off the coast of South Carolina.
- But officials are willing to risk short or medium-term diplomatic friction with Beijing to establish a long-term goal: U.S. capital and knowledge cannot help China's military leapfrog the U.S.
Between the lines: "If the administration wasn't going to do this, Congress would have," Jennifer Harris, who served as the National Security Council's senior director for international economics for Biden's first two years, told Axios.
- "They have continually ratcheted down to land surgically on the smallest yard in need of protecting," she said. "That's testament to how focused this team is on doing what's needed while ensuring we aren't unnecessarily escalating with China."
The bottom line: For the most part, the Biden administration extended the tough-on-China rhetoric, and policies, of former President Trump.
- The new outbound restrictions follow export controls on semiconductors that the Commerce Department announced last October.
- Last month, the Senate voted 91-6 to require notification for investments that could benefit China's military, another indication that both parties are comfortable with a confrontational approach towards Beijing.