Elaine K. Dezenski
President Joe Biden signed an executive order on Wednesday that enables the Treasury Department to review and block outbound private-sector investment in China within key industries that are critical to Beijing’s military, intelligence, surveillance, or cyber-enabled capabilities. The order reflects Washington’s increasing concern that the provision of advanced U.S. technologies to China could undermine U.S. national security interests.
The order adds another tool to address vulnerabilities in U.S. economic security and builds on the foundation of government review already conducted on certain high-risk inbound investments made in America by companies from countries such as China and Iran. This review process, conducted by the multi-agency Committee on Foreign Investment in the United States (CFIUS), has been in place since 1975.
The CFIUS review process has evolved, and the types of investment deals subject to CFIUS reviews have significantly broadened along with national and economic security threats over the decades. Similarly, the scope of U.S. outbound investment requirements is likely to be refined, expanded, and improved as the United States responds to China’s weaponization of technology to circumvent and destabilize U.S. global leadership. Over time, additional countries and industries of concern will almost certainly be added.
There is currently broad bipartisan support for strong investment guardrails to protect against the military applications of China’s key high-tech industries, and this order is the first step. This fall, lawmakers in Congress will introduce more comprehensive outbound investment bills, focusing on additional high-risk technologies, that are likely to receive broad support from both sides of the aisle. Even the executive order itself could widen in scope, as it goes into effect only after the Treasury Department has addressed feedback from the public that it is soliciting over the next 45 days. The White House anticipates that the order will go into effect in early 2024.
As a result of the order, forward-looking corporate boards will likely begin pulling back on China-bound investment plans immediately. Companies already present in China will begin to implement plans to mitigate risk and limit their exposure.
Other countries are also considering following America’s lead. For instance, UK Prime Minister Rishi Sunak has indicated that Britain is considering a similar approach to outbound investment. The European Union has also said that it plans to study the issue.
Overall, however, the most significant impact of the executive order will be on the private sector, which has now received an unambiguous signal about U.S. opposition to Chinese-bound investment.
China has already seen a massive reduction in the amount of capital flowing into the country, largely as a result of its own hostile policies toward Western companies and the private sector’s due diligence efforts. President Biden’s new order, however, is likely to significantly amplify those existing trends, causing even more investors to retreat from China.
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