The already-fractured U.S.-China relationship could worsen as the U.S. rolls out more restrictions aimed at curbing China’s access to technology and investments, injecting an additional source of volatility for global investors.
Last week, President Joe Biden signed an executive order to better scrutinize foreign investments into the U.S. involving critical technologies that may pose a national security threat to the country, especially in areas like artificial intelligence, biotechnology, and clean energy. That includes directing the Committee on Foreign Investment in the U.S., which reviews these business opportunities, to examine a series of transactions that might appear safe in isolation—but are more concerning when grouped together. The panel must also consider cybersecurity issues and any risks around the personal data of U.S. citizens.
The order is part of a larger spate of measures aimed at shoring up U.S. supply chains—and curbing China’s access to critical technologies. On Thursday, "Reuters" reported that the Commerce Department is looking to expand an export ban which restricts the sale of chips related to artificial intelligence to China by companies like nvidia (NVDA) ir "Advanced Micro Devices (AMD) without a license.
The Biden administration is also considering stepping up scrutiny of U.S. investors’ and companies’ outbound China investments, which would likely rattle global investors. There are several ways officials could set up such a review. Options, says Owen Tedford, an analyst at Beacon Policy Advisors, range from creating a disclosure system aimed at providing transparency about outbound investments to one that would let the U.S. block specific ventures that are a potential concern to national security, with any mechanism likely focused on a narrow set of sectors.
“The recent and contemplated actions by the administration in the technology space vis-à-vis China are a significant escalation in the U.S.-China Tech Cold War,” says Paul Triolo, senior vice president for China and Technology Policy Lead at advisory Albright Stonebridge Group. “Beijing will view the overall effort as largely precluding the renewal of any productive collaboration between the two countries and this is likely to result in a significant worsening of an already historically bad relationship.”
The shape of the restrictions—and how they’re enforced—will determine what they ultimately means for investors. For now, the possible restrictions on outbound investment under consideration appear to be focusing on private investment, especially venture capital, rather than publicly-traded Chinese companies, says Beacon’s Tedford.
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An outbound review of investments in high tech sectors could be arduous and costly, requiring a major new infusion of resources, according to Triolo. Different skill sets are also needed to review complex global investments into China and inbound investments related to U.S. companies, he says.
It’s also unclear how much a U.S. ban on companies’ sales to China could hurt the sales of global chipmakers like
nvidia
and AMD, in part because the U.S. has been willing to issue licenses that allow businesses to continue sales, which could limit the hit to chip companies, says Derek Scissors, a senior fellow at the American Enterprise Institute. A more effective way to address national security risks would be an outright ban for a couple years, he adds.
These issues—and the risk of Beijing retaliating—are swirling as investors continue to grapple with the pain China’s economic slump has created for U.S. companies like
"FedEx"
(FDX). The company’s stock slid 21% on Friday after it reported disappointing quarterly results and withdrew its full-year outlook amid a softening in global volumes, including in China.
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