China says the US is trying to stifle its tech development via investment curbs
JOE McDONALD
Thu, August 10, 2023
BEIJING (AP) — China accused Washington on Thursday of trying to block its development after President Joe Biden stepped up a feud over technology and security by tightening controls on U.S. investments that might help Beijing develop its military.
The Foreign Ministry accused the Biden administration of pursuing “technology hegemony” and demanded Washington “immediately revoke its erroneous decision.” It warned that the latest restrictions in a spreading conflict over Beijing’s industrial development would hurt global supply chains.
An order signed by Biden on Wednesday targets advanced computer chips, micro electronics, quantum information technologies and artificial intelligence. The order says it wants to limit U.S. investment in industries that might help develop the ruling Communist Party’s military wing.
US President Joe Biden in Belen, New Mexico, on August 9, 2023. (Photo by JIM WATSON/AFP via Getty Images)
The order adds to restrictions that limit Chinese access to U.S. processor chips used in smartphones, artificial intelligence and other technology on security grounds. Dozens of Chinese companies that Washington says are linked to military modernization are barred from American financial markets.
Washington’s “true purpose is to deprive China of its development rights and maintain its own hegemony,” the Foreign Ministry said.
China will “resolutely safeguard its own rights and interests," the Ministry of Commerce said in a separate statement, but it gave no indication of possible retaliation. Beijing has made similar comments after previous U.S. trade restrictions but usually takes no action.
As it imposes restrictions, the Biden administration is trying to revive U.S.-Chinese relations that are at their lowest level in decades due to disputes over security, human rights, technology, Taiwan and Beijing’s treatment of Hong Kong.
Treasury Secretary Janet Yellen visited Beijing in July and said communication would increase but announced no agreements on disputes. Chinese leaders have demanded the United States change its policies on Taiwan and other issues but have given no indication they might change trade and other policies that irk Washington and China’s Asian neighbors.
US Treasury Secretary Janet Yellen meets China's Vice Premier He Lifeng on July 8, 2023. Pedro Pardo/Pool via REUTERS
Chinese leader Xi Jinping’s government has announced only small steps to retaliate for Western tech restrictions, possibly to avoid disrupting a multibillion-dollar campaign to create its own processor chip, artificial intelligence and other technology industries.
Chinese rules that took effect Aug. 1 require exporters of gallium and germanium, two metals used in computer chips and solar cells, to obtain government licenses. The announcement rattled Japanese and South Korean electronics manufacturers.
The conflict has prompted fears of “decoupling,” or the world splitting into separate industrial markets with conflicting standards that mean electronics, auto and other products and components from one couldn't be used in the other. That might hamper innovation and economic growth.
Yellen and other U.S. officials say they don't want “decoupling” but are pursuing “de-risking.” They say that includes developing additional sources of raw materials, industrial components and consumer goods to avoid disruptions like those during the COVID-19 pandemic.
The Ministry of Commerce accused Washington of “using the cover of ‘risk reduction’ to carry out ‘decoupling and chain-breaking.’”
At the same time, Xi's government, citing strategic risks, has pressed Chinese industries to use domestic suppliers whenever possible, even when that raises costs. Xi has called for China to become a self-reliant “technology power.”
Anxiety about China’s military has increased as Beijing sends fighter planes to intimidate Taiwan, the self-governed island claimed by the Communist Party as part of its territory, and presses claims to parts of the South and East China Seas.
U.S. officials said the new limits were tailored not to disrupt China’s economy but would complement export controls on advanced computer chips.
U.S. investors would be required to notify the government about certain transactions with China. Some would be prohibited.
Officials said the order focuses on areas such as private equity, venture capital and joint partnerships in which the investments could possibly give countries of concern such as China additional knowledge and military capabilities.
In July, the Senate approved a requirement to monitor and limit investments in countries of concern, including China.
JOE McDONALD
Thu, August 10, 2023
BEIJING (AP) — China accused Washington on Thursday of trying to block its development after President Joe Biden stepped up a feud over technology and security by tightening controls on U.S. investments that might help Beijing develop its military.
The Foreign Ministry accused the Biden administration of pursuing “technology hegemony” and demanded Washington “immediately revoke its erroneous decision.” It warned that the latest restrictions in a spreading conflict over Beijing’s industrial development would hurt global supply chains.
An order signed by Biden on Wednesday targets advanced computer chips, micro electronics, quantum information technologies and artificial intelligence. The order says it wants to limit U.S. investment in industries that might help develop the ruling Communist Party’s military wing.
US President Joe Biden in Belen, New Mexico, on August 9, 2023. (Photo by JIM WATSON/AFP via Getty Images)
The order adds to restrictions that limit Chinese access to U.S. processor chips used in smartphones, artificial intelligence and other technology on security grounds. Dozens of Chinese companies that Washington says are linked to military modernization are barred from American financial markets.
Washington’s “true purpose is to deprive China of its development rights and maintain its own hegemony,” the Foreign Ministry said.
China will “resolutely safeguard its own rights and interests," the Ministry of Commerce said in a separate statement, but it gave no indication of possible retaliation. Beijing has made similar comments after previous U.S. trade restrictions but usually takes no action.
As it imposes restrictions, the Biden administration is trying to revive U.S.-Chinese relations that are at their lowest level in decades due to disputes over security, human rights, technology, Taiwan and Beijing’s treatment of Hong Kong.
Treasury Secretary Janet Yellen visited Beijing in July and said communication would increase but announced no agreements on disputes. Chinese leaders have demanded the United States change its policies on Taiwan and other issues but have given no indication they might change trade and other policies that irk Washington and China’s Asian neighbors.
US Treasury Secretary Janet Yellen meets China's Vice Premier He Lifeng on July 8, 2023. Pedro Pardo/Pool via REUTERS
Chinese leader Xi Jinping’s government has announced only small steps to retaliate for Western tech restrictions, possibly to avoid disrupting a multibillion-dollar campaign to create its own processor chip, artificial intelligence and other technology industries.
Chinese rules that took effect Aug. 1 require exporters of gallium and germanium, two metals used in computer chips and solar cells, to obtain government licenses. The announcement rattled Japanese and South Korean electronics manufacturers.
The conflict has prompted fears of “decoupling,” or the world splitting into separate industrial markets with conflicting standards that mean electronics, auto and other products and components from one couldn't be used in the other. That might hamper innovation and economic growth.
Yellen and other U.S. officials say they don't want “decoupling” but are pursuing “de-risking.” They say that includes developing additional sources of raw materials, industrial components and consumer goods to avoid disruptions like those during the COVID-19 pandemic.
The Ministry of Commerce accused Washington of “using the cover of ‘risk reduction’ to carry out ‘decoupling and chain-breaking.’”
At the same time, Xi's government, citing strategic risks, has pressed Chinese industries to use domestic suppliers whenever possible, even when that raises costs. Xi has called for China to become a self-reliant “technology power.”
Anxiety about China’s military has increased as Beijing sends fighter planes to intimidate Taiwan, the self-governed island claimed by the Communist Party as part of its territory, and presses claims to parts of the South and East China Seas.
U.S. officials said the new limits were tailored not to disrupt China’s economy but would complement export controls on advanced computer chips.
U.S. investors would be required to notify the government about certain transactions with China. Some would be prohibited.
Officials said the order focuses on areas such as private equity, venture capital and joint partnerships in which the investments could possibly give countries of concern such as China additional knowledge and military capabilities.
In July, the Senate approved a requirement to monitor and limit investments in countries of concern, including China.
American VCs Fought Back Strict Biden Rules on China Investments. But More May Be Coming
Sarah McBride and Lizette Chapman
Wed, August 9, 2023
(Bloomberg) -- US investors who spent years fighting strict limits on their ability to invest in China scored a victory Wednesday when President Joe Biden released an order imposing only light curbs on the flow of money to the world’s second-largest economy.
But many of those same venture firms fret that future restrictions — whether from the Federal government or individual states — will be far less investor friendly.
The new rule would bar US investors from taking stakes in some Chinese semiconductor, quantum computing and artificial intelligence firms. It’s narrower than previous versions, and will not require the dismantling of earlier investments. Yet while the wording sparked relief in some corners of the financial world, many investors now believe the executive order is the opening salvo for the administration as it looks to ensure that American VCs don’t give China an edge in developing technology that has potential military applications.
“US investors should interpret the EO as the first chapter of a book,” said H.K. Park, managing director for Crumpton Global, a Washington-based consulting firm. “Other initiatives at the federal and state level with broader scopes may come to fruition.”
For example, he said, the special committee on the Chinese Communist Party is advocating for the audit of past investments in Chinese firms, the Senate has approved legislation that would require the disclosure of new investments, and individual states have taken their own actions. The state of Indiana recently enacted legislation requiring its pension fund to divest from investments in China.
“Don’t expect a narrowly targeted national security program to stay narrow — and plan accordingly,” said James Maloney, managing partner at Tiger Hill Partners, which advises investment firms on government policies.
The industry’s ability to stave off major disruptions so far is partly thanks to VCs’ yearslong push in Washington to maintain a version of the investing status quo. Lobbying efforts to weaken provisions of the latest executive order were effective, according to a person with familiar with the matter who asked not to be identified discussing private conversations.
One major concession included limiting the order to exclude past investments, the person said. The industry’s position was that it would be too difficult to untangle past deals, and that it was unfair to penalize investors for following the law at the time.
US tech investors often have outsize sway in politics. “They’re heavy contributors, and we have an election coming up,” said Jeff Fiedler, a former commissioner at the US-China Economic and Security Review Commission. “Both parties are hesitant to rein in private equity and venture capital.”
Long before this week’s order, the specter of legislation along with rising geopolitical tensions had prompted many firms to pull back from China. Funding to Chinese startups with participation from US investors was about $200 million in the second quarter of 2023, according to data compiled by research firm PitchBook. That’s a fraction of the $2.4 billion in investments into Chinese startups in the same period last year, and far lower still than the $19.7 billion in deals in the relatively uncomplicated days of 2018.
The dip corresponds with a broader falloff in global VC investing, but was far more severe. Global investments with participation from US investors declined 51% during the second quarter of 2023 from the year before. By comparison, investments in Chinese startups declined 92%. In addition to international friction, China’s tech sector has also suffered from government crackdown that in recent years has limited the upside for many startups in the country.
The executive order will not target every tech investment in China. The new rule applies only to sensitive technology and those that could be used in a military or surveillance context. One notable exception is space, said John Carlin, a lawyer at Paul, Weiss, Rifkind, Wharton & Garrison and a former Justice Department official. But while space-related companies are not mentioned in the executive order, Carlin said he expects the sector will be subject to future scrutiny.
“This is narrower than people expected,” Carlin said. “This is a cautious first step.”
Some industry players celebrated the executive order. “It makes good strategic sense to slow down capital flow to a foreign adversary and makes even more sense to speed up domestic investment in cutting-edge science,” said Josh Wolfe, co-founder of Lux Capital. “Overall this is a net-positive decision, and implementation will be nuanced.”
Global tech trade association the Information Technology Industry Council said in a statement it appreciated the administration’s “risk-based approach” to overseas investing. And Mike Brown, partner at Shield Capital, said the rule was “a good idea and it’s far overdue.” Brown added that the executive order was likely the first in a series of steps the US would take to maintain its technological edge over China. “There will be more to come because the relationship is complex,” he said. “It goes beyond the money.”
Other VCs have raised concerns that if the US steps back from investing in Chinese startups, other countries will simply step in to fill the void. “We hope that the administration will make more progress with US allies and partners to advance common interests and prevent an otherwise unilateral US policy from disadvantaging American companies vis-a-vis foreign competitors,” the US-China Business Council, which includes VC firms as members, said in a statement. Lux’s Wolfe said the possibility that US investors would simply be replaced by VCs from other countries is the “main downside” of the legislation.
--With assistance from Dawn Lim.
Sarah McBride and Lizette Chapman
Wed, August 9, 2023
(Bloomberg) -- US investors who spent years fighting strict limits on their ability to invest in China scored a victory Wednesday when President Joe Biden released an order imposing only light curbs on the flow of money to the world’s second-largest economy.
But many of those same venture firms fret that future restrictions — whether from the Federal government or individual states — will be far less investor friendly.
The new rule would bar US investors from taking stakes in some Chinese semiconductor, quantum computing and artificial intelligence firms. It’s narrower than previous versions, and will not require the dismantling of earlier investments. Yet while the wording sparked relief in some corners of the financial world, many investors now believe the executive order is the opening salvo for the administration as it looks to ensure that American VCs don’t give China an edge in developing technology that has potential military applications.
“US investors should interpret the EO as the first chapter of a book,” said H.K. Park, managing director for Crumpton Global, a Washington-based consulting firm. “Other initiatives at the federal and state level with broader scopes may come to fruition.”
For example, he said, the special committee on the Chinese Communist Party is advocating for the audit of past investments in Chinese firms, the Senate has approved legislation that would require the disclosure of new investments, and individual states have taken their own actions. The state of Indiana recently enacted legislation requiring its pension fund to divest from investments in China.
“Don’t expect a narrowly targeted national security program to stay narrow — and plan accordingly,” said James Maloney, managing partner at Tiger Hill Partners, which advises investment firms on government policies.
The industry’s ability to stave off major disruptions so far is partly thanks to VCs’ yearslong push in Washington to maintain a version of the investing status quo. Lobbying efforts to weaken provisions of the latest executive order were effective, according to a person with familiar with the matter who asked not to be identified discussing private conversations.
One major concession included limiting the order to exclude past investments, the person said. The industry’s position was that it would be too difficult to untangle past deals, and that it was unfair to penalize investors for following the law at the time.
US tech investors often have outsize sway in politics. “They’re heavy contributors, and we have an election coming up,” said Jeff Fiedler, a former commissioner at the US-China Economic and Security Review Commission. “Both parties are hesitant to rein in private equity and venture capital.”
Long before this week’s order, the specter of legislation along with rising geopolitical tensions had prompted many firms to pull back from China. Funding to Chinese startups with participation from US investors was about $200 million in the second quarter of 2023, according to data compiled by research firm PitchBook. That’s a fraction of the $2.4 billion in investments into Chinese startups in the same period last year, and far lower still than the $19.7 billion in deals in the relatively uncomplicated days of 2018.
The dip corresponds with a broader falloff in global VC investing, but was far more severe. Global investments with participation from US investors declined 51% during the second quarter of 2023 from the year before. By comparison, investments in Chinese startups declined 92%. In addition to international friction, China’s tech sector has also suffered from government crackdown that in recent years has limited the upside for many startups in the country.
The executive order will not target every tech investment in China. The new rule applies only to sensitive technology and those that could be used in a military or surveillance context. One notable exception is space, said John Carlin, a lawyer at Paul, Weiss, Rifkind, Wharton & Garrison and a former Justice Department official. But while space-related companies are not mentioned in the executive order, Carlin said he expects the sector will be subject to future scrutiny.
“This is narrower than people expected,” Carlin said. “This is a cautious first step.”
Some industry players celebrated the executive order. “It makes good strategic sense to slow down capital flow to a foreign adversary and makes even more sense to speed up domestic investment in cutting-edge science,” said Josh Wolfe, co-founder of Lux Capital. “Overall this is a net-positive decision, and implementation will be nuanced.”
Global tech trade association the Information Technology Industry Council said in a statement it appreciated the administration’s “risk-based approach” to overseas investing. And Mike Brown, partner at Shield Capital, said the rule was “a good idea and it’s far overdue.” Brown added that the executive order was likely the first in a series of steps the US would take to maintain its technological edge over China. “There will be more to come because the relationship is complex,” he said. “It goes beyond the money.”
Other VCs have raised concerns that if the US steps back from investing in Chinese startups, other countries will simply step in to fill the void. “We hope that the administration will make more progress with US allies and partners to advance common interests and prevent an otherwise unilateral US policy from disadvantaging American companies vis-a-vis foreign competitors,” the US-China Business Council, which includes VC firms as members, said in a statement. Lux’s Wolfe said the possibility that US investors would simply be replaced by VCs from other countries is the “main downside” of the legislation.
--With assistance from Dawn Lim.
Bloomberg Businessweek
Wed, August 9, 2023
By Kanjyik Ghosh and Stephen Nellis
(Reuters) -China's internet giants are rushing to acquire high-performance Nvidia chips vital for building generative artificial intelligence systems, making orders worth $5 billion, the Financial Times reported on Wednesday.
Baidu, TikTok-owner ByteDance, Tencent and Alibaba have made orders worth $1 billion to acquire about 100,000 A800 processors from the U.S. chipmaker to be delivered this year, the FT reported, citing multiple people familiar with the matter.
The Chinese groups had also purchased a further $4 billion worth of graphics processing units to be delivered in 2024, according to the report.
A Nvidia spokesperson would not elaborate on the report but said that "consumer internet companies and cloud providers invest billions of dollars on data center components every year, often placing orders many months in advance."
The Biden administration last October issued a sweeping set of rules designed to freeze China's semiconductor industry in place while the U.S. pours billions of dollars in subsidies into its chip industry.
Nvidia offers the A800 processor in China to meet export control rules after U.S. officials asked the company to stop exporting its two top computing chips to the country for AI-related work.
The FT report comes as President Biden on Wednesday signed an executive order that would narrowly prohibit certain U.S. investments in sensitive technology in China and require government notification of funding in other tech sectors.
Nvidia's finance chief said in June that restrictions on exports of AI chips to China "would result in a permanent loss of opportunities for the U.S. industry", though the company expected no immediate material impact.
Baidu, ByteDance, Tencent and Alibaba did not immediately respond to Reuters' requests for comment.
(Reporting by Kanjyik Ghosh in Bengaluru and Stephen Nellis in San Francisco; Editing by Anil D'Silva and Diane Craft)
By Kanjyik Ghosh and Stephen Nellis
(Reuters) -China's internet giants are rushing to acquire high-performance Nvidia chips vital for building generative artificial intelligence systems, making orders worth $5 billion, the Financial Times reported on Wednesday.
Baidu, TikTok-owner ByteDance, Tencent and Alibaba have made orders worth $1 billion to acquire about 100,000 A800 processors from the U.S. chipmaker to be delivered this year, the FT reported, citing multiple people familiar with the matter.
The Chinese groups had also purchased a further $4 billion worth of graphics processing units to be delivered in 2024, according to the report.
A Nvidia spokesperson would not elaborate on the report but said that "consumer internet companies and cloud providers invest billions of dollars on data center components every year, often placing orders many months in advance."
The Biden administration last October issued a sweeping set of rules designed to freeze China's semiconductor industry in place while the U.S. pours billions of dollars in subsidies into its chip industry.
Nvidia offers the A800 processor in China to meet export control rules after U.S. officials asked the company to stop exporting its two top computing chips to the country for AI-related work.
The FT report comes as President Biden on Wednesday signed an executive order that would narrowly prohibit certain U.S. investments in sensitive technology in China and require government notification of funding in other tech sectors.
Nvidia's finance chief said in June that restrictions on exports of AI chips to China "would result in a permanent loss of opportunities for the U.S. industry", though the company expected no immediate material impact.
Baidu, ByteDance, Tencent and Alibaba did not immediately respond to Reuters' requests for comment.
(Reporting by Kanjyik Ghosh in Bengaluru and Stephen Nellis in San Francisco; Editing by Anil D'Silva and Diane Craft)
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