Beijing: new Treasury rules amount to ‘decoupling’

Beijing has expressed serious concerns following Washington’s proposal of a set of detailed rules that would restrict and monitor United States investments in China for artificial intelligence, semiconductors and quantum computing. 

The Chinese Commerce Ministry on Monday said that while the US has repeatedly stressed that it has no intention to decouple from China or obstruct the country’s economic development, in fact Washington has insisted on restricting American companies from investing in China and suppressing the normal development of Chinese industries.  

“This is a typical generalized national security approach, which goes against the consensus reached by the two heads of state in the meeting in San Francisco,” a spokesperson of the Ministry said, referring the meeting between Chinese President Xi Jinping and US President Joe Biden in the US last November.

“The restrictions will negatively affect the normal economic and trade cooperation between Chinese and US enterprises, undermine the international economic and trade order and disrupt the security and stability of the global industrial and supply chains,” he said.

He added that China opposes the United States’s move and reserves the right to take corresponding measures. He called on the US government to stop politicizing and weaponizing trade issues.

Zhou Mi, a researcher at the Ministry of Commerce, said Washington’s investment restrictions will accelerate the decoupling of high technology cooperation between the US and China. He said it will also slow scientific development and technological innovation of the world. 

Beijing’s comments came after the US Treasury Department on June 21 issued a notice of proposed rule-making (NPRM) to implement Biden’s executive order, which was announced last August with the title “Addressing US investments in certain national security technologies and products in countries of concern.”

The Treasury said the NPRM sets out a process for establishing a new national security program to address threats posed by certain US outbound investments into mainland China, Hong Kong and Macau.

“The proposed NPRM 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, assistant secretary of the Treasury for Investment Security.

The Treasury is seeking comment on the proposal through August 4 and expects the regulation to go into effect by the end of this year. 

According to Biden’s executive order, the secretary of the treasury needs to issue regulations that prohibit US persons from engaging in the AI, chip and quantum computing businesses in China. 

The regulations should also require US persons to notify the Treasury of certain other transactions involving these technologies and products that may threaten the US national security.

The NPRM said a “covered transaction” may be a prohibited transaction, or only a notifiable one. 

Covered transactions include the provision of debt financing, conversion of a convertible debt, greenfield investment (a type of foreign direct investment in which a company establishes operations in a foreign country), entrance into a joint venture and investment as a limited partner (LP) or equivalent.

China’s FDI

The Chinese Commerce Ministry said on June 21 that its foreign direct investment total fell 31% to US$57.9 billion in the first five months of this year from US$84.3 billion in the same period of 2023. 

FDI in China’s high technology manufacturing sector rose 2.7% to US$6.9 billion. FDI coming from Germany and Singapore to China rose 24% and 16% year-on-year, respectively. But the commerce ministry did not disclose the detailed FDI figures by country. 

China’s high technology development certainly needs the participation of foreign funds, but it mainly relies on domestic funds and policy environment, said Xiang Ligang, director-general of the Zhongguancun Information Consumption Alliance, a Beijing-based telecom industry association.

Xiang said the proposed US investment restrictions gave China a very clear signal that the country must build its own AI technology. He pointed out that Beijing has recently launched a national policy to support Chinese technology startups.

On June 15, China’s State Council published a document to encourage local governments, state-owned-enterprises, banks, private equity and asset management firms and long-term fund management companies to provide loans, subsidies and funds to technology startups.

It said financial authorities should create a favorable financing environment for technology companies to raise funds and grow. It said China will fine-tune its regulations to attract foreign investment.

Guan Quan, a professor at the School of Economics of Renmin University of China, says in an article published on June 23 that the US has recently sent an official to Japan and the Netherlands and urged them to strengthen their export controls of chip-making equipment. 

Besides, he says, Washington also plans to add 11 Chinese chip foundries to its Entity List. He says all these moves have shown clearly that the Biden administration will not stop suppressing China’s chip sector.

He says the only way for China to end all these curbs is to achieve technological breakthroughs, until one day the country can self-supply all the chip-making tools it needs. But Guan did not provide a timetable and roadmap about how China can achieve its goal.

Chinese students repatriated

Some commentators said, as it may take six more months before the proposed US investment restrictions become law, China can still use this window to attract American investments into its high technology sectors. 

Meanwhile, the impact of banning Chinese students from studying or obtaining AI technology in the US is immediate. 

On June 22, China Daily, a state-owned publication, reported that four Chinese students who traveled to the US for academic conferences had recently suffered from the US border officers’ “unwarranted harassment, interrogation and repatriation.” 

The report said the four science students, including two who have research interests in AI, were questioned by border officers about their personal and family details and whether they were members of the Chinese Communist Party.  

It said the US has repatriated more than 30 Chinese students, mostly master’s or doctoral degree candidates in computer-related fields, in recent years.

Read: China hawk: Fix symbolic, ineffective US sanctions

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