The White House has taken one of the most significant steps yet in its quest to cut China’s tech sector off from American support.
President Joe Biden yesterday issued an executive order signaling a ban on new U.S. investments in key areas of Chinese technology that could be used to do things like develop more sophisticated weapons systems or aid military codebreaking. The order specifically targets “sensitive technologies and products in the semiconductors and microelectronics, quantum information technologies, and artificial intelligence sectors.”
The Treasury Department said it “anticipates excepting certain transactions, including potentially those in publicly traded instruments and intracompany transfers from U.S. parents to subsidiaries.” The department is taking written comments for the next 44 days regarding the scope of the order.
China “eliminate[s] barriers between civilian and commercial sectors and military and defense industrial sectors, not just through research and development, but also by acquiring and diverting the world’s cutting-edge technologies, for the purposes of achieving military dominance,” said Biden—whose own commerce and defense departments just agreed to coordinate their local semiconductor investments, to support the U.S. military—in the order.
The Chinese government, which just introduced new rules that effectively require foreign app developers to have a Chinese office or partnership to keep operating there, complained that Biden’s order “affects the normal business decisions of enterprises, disrupts the international economic and trade order, and seriously disrupts the security of global industrial and supply chains.”
The order is a declaration of a national emergency, but it’s not clear that it will have much of a measurable impact in the short term, as U.S. private equity and VCs have already cooled on Chinese investments. However, it could be expanded in the future, and even now it sends a heck of a message: China’s military is not going to get stronger thanks to American money or tech advances.
“The thing we’re trying to prevent is not money going into China overall, because they have plenty of money,” an unnamed U.S. official told CNN. “The thing they don’t have is know-how.”
Meanwhile, the Financial Times reports that Baidu, ByteDance, Tencent, and Alibaba are all scrambling to get their hands on high-performance Nvidia chips that they need for their large language models, with collective orders running to $5 billion. The A800 chips they’ve ordered are already relatively slow, thanks to the Biden administration last year hardening export restrictions, but the Chinese tech giants’ A.I. ambitions would be severely set back without them, and they fear even stronger export restrictions could be coming.
That sounds like a reasonable assumption. More news below—and do also check out the Fortune Founders Forum, which just launched today. Unsurprisingly, many of the entrepreneurs in this new club come from the tech world.
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David Meyer
