US unveils draft plan to restrict investment in Chinese technology

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The Biden administration has set out its latest plans to curb the modernisation of China’s military with a new regulation restricting US investment in Chinese cutting-edge technology.

The Treasury on Friday released proposals for a new rule designed to implement an executive order that President Joe Biden signed last year. The regulation — which could be amended following a six-week public comment period — is aimed at restricting the flow of US technology, capital and expertise to groups in China that work with the People’s Liberation Army.

It is the latest US effort to make it harder for Chinese groups deemed to be a security threat to gain access to new technology and will complement several sweeping export control packages introduced over the past two years.

“This proposed rule advances our national security by preventing the many benefits certain US investments provide — beyond just capital — from supporting the development of sensitive technologies in countries that may use them to threaten our national security,” said Paul Rosen, the top Treasury official for investment security.

The regulation would introduce outright bans on certain investments and require American individuals and organisations to notify the government of other transactions. It also includes possible exceptions, including for investments in publicly traded securities or funds.

The new rule would affect everything from equity investments to debt financing that is convertible to equity. It would also apply to greenfield investments and joint ventures. But it would exempt investments by limited partners (LP) — endowments and pension funds that seed venture capital and private equity groups — below a certain threshold.

The Treasury said the regulation would prevent the exploitation of US investment by countries “seeking to develop sensitive technologies or products that are critical to the next generation of military, intelligence, surveillance, or cyber-enabled capabilities” that pose a threat to the US. But it singled out China as a “country of concern”.

The Biden administration has been criticised — mostly by Republican lawmakers — for not proposing to ban investment in publicly traded securities.

The effort to screen outbound investment is one of a number of issues that have stoked tensions between the US and China. In the six months since Biden and China’s President Xi Jinping met in San Francisco, the two countries have stepped up high-level engagement to try to stabilise relations.

But senior US officials from Treasury secretary Janet Yellen to national security adviser Jake Sullivan have been clear with Beijing that Washington will continue to introduce measures to reduce what they view as security threats from China.