Biden’s tech restrictions deter investors, fearing further measures.

Biden's tech restrictions deter investors, fearing further measures.

Biden’s Move to Restrict U.S. Technology Investments in China Raises Concerns for Investors

HONG KONG/WASHINGTON, Aug 10 (ANBLE) – President Joe Biden’s recent executive order to prohibit some U.S. technology investments in China has left investors apprehensive about potential further measures amidst simmering tensions between the two largest economies in the world1. The move by U.S. private equity and venture capital investors to curb investments in sensitive technologies in China began during the previous administration of President Donald Trump and has continued to worsen as issues escalated ranging from tech disputes to China’s industrial policies and national security2. While Biden’s executive order aims to safeguard U.S. national security and prevent American capital and expertise from aiding China’s military modernization, analysts and dealmakers believe that this is just the beginning and expect more stringent measures to come3.

The Implications for U.S. Investments in China

The executive order authorizes the Treasury secretary to restrict or prohibit U.S. investments in Chinese firms operating in semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems4. Experts predict that Congress might introduce additional legislation expanding on the restrictions imposed by Biden’s order5. Notably, congressional Republicans have criticized the order for not going far enough6. Hence, investors may opt to adopt a wait-and-see approach, choosing to postpone investment decisions until the implementation rules become clearer7.

Acquisitions of Chinese companies by U.S. firms have already declined nearly 60% this year, plummeting from $8.8 billion during the same period last year to $3.5 billion, as per Dealogic data8. Furthermore, the tech sector has experienced a substantial drop in deal value, falling from $6.1 billion to $815 million9. The mounting tensions between China and the United States, coupled with Beijing’s regulatory crackdown on its private enterprises, have compelled numerous fund managers to shift their focus away from China or to pivot towards local-currency investments10. Wayne Shiong, a partner at Beijing-based China Growth Capital, asserts that the situation for dollar-based funds investing in China’s tech sector is already dire, leaving little room for further deterioration11. The introduction of Biden’s restrictions is likely to intensify the sense of urgency amongst China-focused venture capital firms to raise yuan funds from Chinese investors12.

China’s Response and the Way Forward

Although Biden’s order poses challenges for China’s efforts to attract foreign capital and revive its slowing economy, Pan Yuan, a researcher at the Chinese Academy of Social Sciences, a prominent government think tank, emphasized that China will maintain an open policy towards foreign investments13. Despite the restrictions, China seeks to counter them by focusing on enhancing its domestic technology capabilities14.

China hawks in Washington have blamed American investors for transferring capital and valuable know-how to Chinese technology companies, potentially aiding the advancement of Beijing’s military capabilities15. Concurrently, China aims to achieve self-sufficiency amidst escalating tech disputes16. In response to Biden’s executive order, China’s commerce ministry expressed “grave concern” and stated its intention to take countermeasures17. However, analysts suspect that China’s retaliatory options remain limited and are unlikely to escalate the matter, considering the close scrutiny China has faced since the Trump era18. Derek Scissors, a senior fellow and U.S.-China economic relations expert at the American Enterprise Institute, suggests that China’s main reaction might involve discouraging other countries from emulating American actions19. While China could retaliate in non-reciprocal ways, the executive order itself appears to be of little consequence, and any escalation by China could risk turning a molehill into a mountain20.

In conclusion, President Biden’s executive order to restrict U.S. technology investments in China has raised concerns among investors and is expected to have a significant impact on future investment decisions. The limitations imposed by this order are seen as only the beginning, with further measures and legislation likely to follow. The decline in U.S. acquisitions of Chinese companies, particularly in the tech sector, highlights the current challenges and the urgency felt by venture capital firms. China’s response, while expressing concern and reserving the right to countermeasures, may be limited given the scrutiny it has faced previously. The way forward for China lies in bolstering its own technology capabilities and attracting foreign capital through an open policy approach.

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