Under intense pressure from lawmakers on both sides of the aisle, the Biden administration is poised to announce new measures aimed at restricting investment in China.
The balloon fiasco sharped Congress’s focus on an issue that already had the closest thing to bipartisan support you can hope to see inside the Beltway these days — namely, curbing the flow of US investment dollars to the world’s second-largest economy.
The premise is straightforward. China remains a command economy, and every private enterprise is ultimately beholden to the Party. As mega-cap Chinese tech companies learned over the past couple of years, Xi runs a protection racket. If you don’t want to be ensnared in a Kafka-esque bureaucratic nightmare, you have to pay him. And if your company is engaged in any sort of business that might benefit the PLA or China’s surveillance state, you may as well be a state-owned enterprise.
So, investments in China are in many cases tantamount to investments in Xi, whether investors realize it or not. Congress doesn’t love that, and during the Trump administration, a variety of initiatives were either floated or implemented to prevent Americans from inadvertently funding the Party.
Now, on the heels of balloon revelations, the Biden administration is set to move ahead with an executive order which includes a list of restrictions in the works for nearly a year.
“For months, the Biden administration has been preparing curbs on the investments that US firms can make in China, particularly in areas like advanced computing,” The New York Times reported, adding that the measures are nearly finalized and could be announced over the next two months. Janet Yellen has apparently been busy liaising with the EU to preempt Europe from undercutting the new rules by providing comparable financing.
Maxine Waters said the US needs to ensure that “hedge funds, private equity firms and Wall Street are not investing in ways that hurt our economy or funding the adversarial actions of the Chinese government.” As the Times pointed out, Blackstone, KKR, Sequoia, Carlyle, Bain, Silver Lake and others “all have notable exposure to China.”
The Times said that although details remain sparse, Biden’s order will probably mandate stricter reporting on any planned investments in countries deemed US adversaries. Sources said that in all likelihood, “outright investments” in sectors including quantum computing, advanced semiconductors, surveillance and “some” AI initiatives will be banned altogether.
In 2022, the White House announced new US export restrictions aimed at curtailing China’s capacity to advance critical domestic tech initiatives, including AI development and supercomputing. In simple terms, the US wants to stop China in its tracks on the road to developing a domestic chip industry, thereby hampering Beijing’s efforts to build out an already sprawling police state and impeding the enhancement of the PLA’s multi-faceted war-fighting capabilities. More specifically, Washington is actively trying to prevent Beijing from building advanced semiconductors by, among other things, restricting the sale of related machinery.
As the Times put it this week, describing Biden’s forthcoming investment rules, “Depending on how it is put into effect, this new tool could fundamentally alter [America’s] financial relationship with China.”
That’s the official national security explanation. But more than once the other motivation is acknowledged = stifle the growth of the Chinese economy in general.
My mother taught me it is stupid to cut off your nose to spite your face. We’ve been doing this for all the decades I can still remember. Back in the Carter Admin, I believe, we weaponized our food exports by refusing to send food to folks we didn’t like even if they willing to pay for it (did we think that’s what Jesus would do, starve the hungry?). People found other folks to buy from and our overseas sales took years to recover. Meanwhile we had to pay subsidies to farmers, a tax on us, because they lost much of their revenue. We do this over and over and it really became serious starting with his Trumpness, copied by his successor. Don’t we get it? China has 1.5 bil people with a brain. Admittedly, these folks are not all geniuses but if even if only 2% are, that’s 30,000,000 very smart people! Doesn’t anyone get that their geniuses are just as smart as ours? I know they are, I’ve taught them. My school has two very successful MBA programs running in China. Not only don’t we get income from not working with them but we don’t get to know what they know. We never get to share in their reactions to what they learn from us. For many years the US gained much strength, not only from our resources, but also from what we took from others. We were pretty independent but as our way of life became increasingly expensive we were forced to work with others. We may find rare earths we need for modern society in the US eventually, but China processes more of that metal than everyone else put together and they have more than anyone else. Where the US was in the 1950s doesn’t count anymore. Any kid can tell you what counts now. All this messing around with Xi is political crap. Come on, a powerless balloon, with no controls drifting aimlessly here and there is a major threat? Be serious. We look ridiculous throwing a hissy fit about a balloon. When we actually mattered to the world we would send their foreign minister a stern diplomatic note and set up a meeting to yell at them in person. Now we cancel the meeting and threaten to do stuff to them they can already overcome. Oh yeah, we do have Marjorie to yell at Biden in her prom dress so shake, shake with fear everyone. Do we really understand how stupid we look to the world right now? More nose cutting ….
Wow. well put, Prof Lucky.
(FYI – the only listed non-Chinese rare earth minerals refiner I’ve found is Lynas in Australia. MP in the Us is building one, but at the moment they still have to send the ore they mine over to the PRC to be refined.)
As a past investor in Lynas my understanding is the refining was happening in Malaysia. Also rare earths are mis-named they are found many places in the earths crust, the ones from china were just the cheapest so nobody bothered to find other sources until the last few years.