The United States Ban Investment into China’s Technology Sector

Introduction

In its latest efforts to curb China’s power, and to cease its access to American technology and capital, the Biden administration has imposed a ban on certain investments relating to China’s technology sector. What does this mean for investors, the Chinese government, the rest of the West and the lawyers advising on it all?

About the Ban

On 9th August 2023, President Biden announced a new executive order, which will come into force in 2024, banning investment into China’s quantum computing, advanced chips and artificial intelligence sectors.

The ban is expected to mostly affect private equity and venture capital firms. This includes companies such as Sequoia China and GGV, which have been pouring billions into the country in recent years.

A Need to Take Action?

The US view the overall growth of the Chinese economy, as well as its technology and science sectors, as a developing threat.

A further concern is the growth of the Chinese military. In an effort to prevent it from accessing American technology, the limits specifically relate to investments in new technologies with military use.

Biden expanded on the reasoning behind the ban, stating that progress in the Chinese tech sector posed ‘significant national security risks’ due to the ways in which improved computers could help the development of sophisticated weapons and spying capabilities.

Is the Rest of the West Going to Follow Suit?

Currently, it appears that the UK and EU are being more cautious in their approach to addressing China’s tech progress. For now, the UK has stated that it would consider the measures taken by the US and asses the national security risks attached to foreign investment. However, US officials have said that the UK, Germany as well as the European Commission are considering similar investment regimes.

Reactions in Beijing

The Chinese government has condemned the decision. Officials have stated that the move goes against the principles of fair competition and market economy. Beijing has also reiterated that it retains the right to take countermeasures.

Impact on Law Firms

The new rules are set to shake up the financial sector. Equally, the move is likely to affect the commercial law industry.

Law firms will be tasked with ensuring compliance with the new legal framework, assessing ongoing and future investments.

The restrictions may also lead to an increase in technology theft, therefore intellectual property lawyers may be engaged to make sure their clients’ products are protected.

Conclusion

The Biden administration’s latest move to hinder China’s military strength has sent a shockwave through the financial sector. Investors will have to be more careful when venturing into the Chinese market. Commercial lawyers will have their work cut out for them when the restrictions come into force, advising their clients on compliance and the protection of their products. Furthermore, investors and lawyers will need to keep a close eye on potential restrictions introduced by the UK and EU in the near future.

By Scott Hickman