MARY LOUISE KELLY, HOST:
President Biden signed an executive order today restricting U.S. investment into Chinese technology. The new rules will make it harder for Americans to invest in semiconductors and microelectronics, also quantum information tech and certain AI systems in China. To talk us through this, let's bring in NPR China correspondent John Ruwitch. Hey, John.
JOHN RUWITCH, BYLINE: Hi, there.
KELLY: OK. So what else does this new executive order say?
RUWITCH: Well, it - what it does is authorizes the Treasury Department to impose restrictions in those three areas that you mentioned - AI, quantum computing, basically, and semiconductors. These restrictions target investments in China by U.S. private equity companies, venture capital firms, as well as greenfield investments, investments into joint ventures. You know, officials say it's what they call a small-yard, high-fence measure. In other words, it's narrowly targeted, and there are plenty of sectors in China where Americans actually can invest, even with these instructions in place.
KELLY: OK. So I'm just trying to understand this. This means all American investments into these sectors I just named - they will be banned?
RUWITCH: Well, some will be strictly off limits. Others, in theory, will be open, but American investors will have to notify the Treasury Department of transactions in those areas. There may also be exceptions for publicly traded companies. A senior administration official says that's because private equity, venture capital type investments come with what he called intangibles, like help with management, introduction to key players, connections to other companies. Those kinds of things actually help - you know, sort of go along with the money and help accelerate the development of certain technologies. Treasury is going to implement a public comment period for 45 days - they want stakeholder input - and then they're going to finalize these rules and put them into effect, although we don't know when that's going to happen.
KELLY: And just to step back, why? What's the rationale for doing this?
RUWITCH: It's national security. You know, it's part of an ongoing series of measures. And, you know, officials say that it fills a gap, actually. So in the fall, the Biden administration imposed controls restricting export - the export of the most advanced microchips to China. There are national security reviews for Chinese investments coming into the U.S. And so now what they say they're doing is bolstering American security by trying to prevent China from exploiting U.S. money and U.S. know-how going into China to develop technology indigenously in China that will give the Chinese military or Chinese intelligence organizations an edge. The reality is that foreign investment into China is down already. Venture capital investment from the U.S. is way down, which isn't surprising - right? - because relations are quite bad. The writing has been on the wall. This executive order and these new investment rules have been in the works for months and months and months.
KELLY: Just to stay with one of those last points you just made that relations between the U.S. and China have been bad - quite bad - although, in recent weeks, there seemed to be little glimmers of the two sides at least talking and trying to stabilize the relationship. I'm going to go out on a limb here, John, and guess that China will not be thrilled by this executive order.
RUWITCH: (Laughter) That's a good guess. You know, it's been - this issue has been repeatedly raised, and Beijing has raised its concerns with Washington over it. You know, Secretary of State Blinken was in China in June. He spoke with his counterpart at the time about these impending new restrictions. The foreign minister of China wasn't happy. A State Department spokesman said that his reaction was strong. Ambassador Xie Feng from China, last month, vowed retaliation if the U.S. goes ahead with this.
U.S. officials have been pretty mindful about the impact, though. You know, again, it's been in the works for months. They've made a point of noting that it is not sweeping. It's targeted. It's not being done with economic benefit in mind. It's national security. But the U.S. has been discussing it with allies and friends, too, you know, to try to get on the same page, to have maximum impact. You know, big picture, the trend seems clear. It's, you know, going to be harder to invest in China, harder for foreign companies to do business in China. And that's not just because of these U.S. rules, right? China's imposed its own rules going back and forth. So we're poised for more rocky times ahead, I think.
KELLY: Thank you, John.
RUWITCH: You're welcome.
KELLY: NPR's John Ruwitch. Transcript provided by NPR, Copyright NPR.
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