The recent executive order issued by US President Joe Biden restricting US investments in Chinese tech sectors has sparked debates and discussions about its potential impact. According to the order, US venture capital and private equity investments in Chinese companies involved in semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems will be regulated to prevent the exploitation of US investments for military modernization purposes.
While this directive has raised concerns and tensions between Beijing and Washington, experts argue that its actual impact may be limited. Brock Silvers, the Chief Investment Officer at private equity firm Kaiyuan Capital, describes the order as “more smoke than actual fire” since it only applies to a small number of tech sectors. Therefore, it is expected to have a minimal effect on overall US investment activities in China.
Chinese investors also downplay the significance of these new investment restrictions. Zheng Haowei, a manager at Sino IC Leasing, highlights that US investment in China’s chip sector has been gradually decreasing since 2019. Chinese semiconductor companies largely rely on domestic capital for support, making them less vulnerable to the impact of US investment curbs.
Additionally, data from investment consultancy PitchBook reveals that US investment in China’s semiconductors, quantum computing, and AI sectors represents a relatively small portion of overall deal activity. The number of US investors involved in China-based venture capital deals has declined significantly in recent years.
However, despite the limited immediate impact, experts warn that a growing tech and trade war between the US and China could have long-term consequences. An unrestrained tech war could destabilize the already fragile global economy. The need for a more balanced and cooperative approach is emphasized to mitigate potential risks for both sides.
Amidst these developments, the US Treasury Department is seeking public input for the formulation of a targeted national security program based on Biden’s executive order. This public commentary period will last for 45 days, providing an opportunity for stakeholders to express their opinions and influence the final policies.
Frequently Asked Questions (FAQ)
1. What does the executive order restrict?
The executive order restricts US venture capital and private equity investments in Chinese companies involved in specific tech sectors, including semiconductors and microelectronics, quantum information technologies, and certain artificial intelligence systems.
2. Will these restrictions have a significant impact on China’s targeted tech sectors?
Experts suggest that the impact may be limited. US investment in China’s chip sector has been decreasing, and Chinese semiconductor companies are mostly supported by domestic capital.
3. How many US investors are involved in China-based VC deals?
According to data from PitchBook, there were only 64 US investors involved in China-based venture capital deals so far in 2023, which is significantly lower than previous years.
4. What are the potential consequences of a tech and trade war between the US and China?
Experts warn that an unrestrained tech war could have negative effects on the global economy, making it even more unstable.
5. How can stakeholders provide input on the formulation of related national security programs?
The US Treasury Department is accepting written public commentary for the next 45 days to inform the formulation of targeted national security programs based on the executive order.