In Washington – ACMA Insider – August 10, 2023

China Investment Review Targets New Investments, Congress Considers Further Action President Biden signed an executive order on August 9 mandating …

China Investment Review Targets New Investments, Congress Considers Further Action

President Biden signed an executive order on August 9 mandating reviews of future U.S. investments into certain technologies related to defense or with dual commercial and military applications, including artificial intelligence. The order comes as the House and Senate consider including broader language in a must-pass defense bill.

These moves serve as a counterweight to separate efforts by the Biden Administraiton to reengage with China, which has canceled or downgraded recent meetings with senior White House officials.

The Biden Administration order prohibits future investment in quantum computing sensors and networks, advanced semiconductors, and certain AI technology.  It will also require U.S. firms to notify the federal government if they invest in lower-tier semiconductors not already covered by U.S. export controls. Most details have been left for Treasury to determine during a mandated rulemaking process.

Congress has taken stronger steps.  Separately, in Amendment SA 931 to the 2023 National Defense Authorization Act, 91 Senators voted to include an investment review process for outbound investment, described as a reversal of the existing Committee on Foreign Investment in the United States (“CFIUS”) program with only 6 objecting. The Amendment covers “advanced semiconductors and microelectronics, artificial intelligence, quantum information science and technology, hypersonics, satellite-based communications, and networked laser scanning systems with dual-use applications”.

Both proposals draw on existing legislation that had been introduced this year. The amendment and executive order may work in tandem, with the White House using the legislation to clarify their legal authority to do so, according to media reports.

These hardline proposals are emerging while the Biden Administration continues a full-court diplomatic press on China to reengage on national security, climate, and other issues. In recent months, Treasury Secretary Janet Yellen, Secretary of State Antony Blinken, and U.S. Special Presidential Envoy for Climate John Kerry have all traveled to China to engage on existing issues.

Although the Biden Administration makes clear that a partnership with China is of interest, China continues to see such trade limitations as counterproductive and “politicizing and weaponizing” the relationship, according to Chinese Foreign Ministry spokesperson Mao Ning. Last week, a proposed meeting between Agriculture Secretary Tom Vilsack and his Chinese counterpart did not happen after the Chinese official skipped an APEC meeting in Seattle, WA.  Commerce Secretary Gina Raimondo’s proposed trip to Beijing later this month may be canceled due to lack of deliverables, according to media reports.

While China criticizes the proposal, Secretary Yellen claims that the “transparent” and “narrowly scoped” measures under consideration for the executive order would protect national interest rather than disrupt trade between the two countries. Among the sectors covered by the restrictions are dual-use technologies which, according to Yellen, could pose security concerns. These include artificial intelligence and semiconductors.

The nation’s manufacturing sector is facing transformative adjustments as the Administration and Senate discuss the transparency of Chinese supply chains. ACMA members who interact with the sectors mentioned above may have to adopt additional measures when considering investment in China to meet requirements proposed by the Executive Order. Businesses that manufacture dual-use products specifically will be closely inspected for potential linkage to Chinese firms if an executive order is issued in the upcoming months.

Contact Dan Neumann with questions.