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Biden order will force companies to weigh China investments

Companies are facing a new executive order and potentially congressional action restricting outbound investments in technologies such as quantum computing and AI in China.

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Companies have an opportunity to weigh in on a new regulation the Biden administration plans to implement that restricts investments made in certain technologies in China.

President Joe Biden signed an executive order (EO) this week addressing U.S. investments in semiconductors and microelectronics, quantum information technologies, and artificial intelligence in China. It will prohibit certain investments in entities tied to those technologies that risk national security and will require notification for other sensitive investments, according to the EO. The program aims to build off export controls targeting China that the administration implemented last year.

The Biden administration wants to prevent countries such as China from capitalizing on U.S. investments in the technologies considered critical in the development of military, surveillance, intelligence and cyber-enabled capabilities. The Treasury Department will lead the rule-making, which will include an opportunity for public comment.

The administration is targeting outbound investments in technologies for reasons beyond financial, said Jessica Brandt, policy director for the AI and emerging technology initiative at the Brookings Institution.

"It isn't just the money. China has access to plenty of money," Brandt said. "The issue is that often these kinds of investments come with advice and other avenues for developing the kind of know-how that would help them to make advances in these critical technologies."

U.S., China compete on policy, national security and tech

The U.S. is competing against China's top-down approach when it comes to policies for businesses, Brandt said. Instead of issuing rules for companies to follow to protect national security interests, the U.S. is allowing companies to weigh in and shape the investment rules.

Brandt said the rules are also designed to be dynamic, leaving room for changes in the future. Still, the full impact to investors remains unknown, and the move will likely "get pushback from all sides," she said.

Think about what is your nexus with China and in what industries, with respect to what technologies, and assess where you are in relation to the proposals.
Anthony RapaCo-chair, international trade practice group, Blank Rome

"Industry is obviously not going to love any new requirements that might make it harder for them to do business," Brandt said. "China is not going to love these kinds of restrictions on capital and know-how no matter how tightly scoped they are. China hawks are going to say this didn't go far enough."

Though the rules aren't in effect yet and won't result in any immediate changes, companies that have or are planning such investments in China will start to take this process into account, said Anthony Rapa, co-chair of law firm Blank Rome's international trade practice group.

Companies will need to anticipate whether and to what extent China will consider countermeasures to Biden's actions, how allies such as the EU will react and how it might affect business connections in China.

"Think about what is your nexus with China and in what industries, with respect to what technologies, and assess where you are in relation to the proposals," he said.

On top of the regulatory process, Congress might still pass legislation on this same topic, Rapa said. The Senate passed the bipartisan Outbound Investment Transparency Act in July, which targets the same technologies listed in the EO.

Makenzie Holland is a news writer covering big tech and federal regulation. Prior to joining TechTarget Editorial, she was a general reporter for the Wilmington StarNews and a crime and education reporter at the Wabash Plain Dealer.

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