Washington - President Joe Biden has issued an executive order that imposes targeted restrictions on specific US investments in sensitive technology sectors within China. This order not only narrows the scope of permitted investments but also mandates that the government be informed about funding in other technology fields.

This long-awaited executive order empowers the US Treasury Secretary to curtail or limit certain investments made by the US in Chinese entities operating in three critical sectors: semiconductors and microelectronics, quantum information technologies, and specific artificial intelligence systems.

President Biden, in a letter to Congress, outlined the declaration of a national emergency to counter the risk of advancements by countries like China in technologies crucial to military, intelligence, surveillance, and cyber capabilities. The proposal particularly targets investments in Chinese companies engaged in software for chip design and chip manufacturing tools. The United States, Japan, and the Netherlands currently dominate these domains, and China has been striving to establish domestic alternatives.

While this step might intensify tensions between the two largest global economies, US officials emphasize that the prohibitions primarily address the most pressing national security threats rather than seeking to sever the deeply interdependent economic ties between the nations.

Senate Democratic leader Chuck Schumer praised the order for addressing the issue of American funding indirectly supporting Chinese military progress. He stated that Congress must enshrine these restrictions in law and refine them.

However, some Republicans argued that the executive order fell short in its scope. House Foreign Affairs Committee Chairman Michael McCaul praised the restriction on new outbound investments in China but expressed concerns about the omission of existing technology investments and sectors like biotechnology and energy.

The central focus of the order is to prevent US investments and expertise from contributing to the development of technologies that could bolster China's military modernization efforts and pose a threat to US national security. Private equity, venture capital, joint ventures, and greenfield investments are the primary targets.

Most of the investments subject to the order will require government notification, while certain transactions will be outright prohibited. The Treasury Department anticipates exemptions for transactions involving publicly traded instruments and intra-company transfers from US parents to subsidiaries.

China's embassy in Washington conveyed disappointment over the move, with a spokesperson expressing concerns that the restrictions would detrimentally affect the interests of both Chinese and American companies and investors. China's Commerce Ministry accused the US of disrupting global industry and supply chains.

This executive order is expected to be implemented next year, following rounds of public comment and feedback. The order's implications on artificial intelligence (AI) investments are anticipated to prohibit military-oriented uses, with other AI investments requiring government notification. The regulations surrounding AI and quantum computing are still under development, with potential exemptions for research and academic institutions.