Biden Administration Prepares Executive Order to Restrict U.S. Investment in China
The Biden administration has been working on a new executive order for several months that aims to limit U.S. investment in certain geopolitical rivals, particularly China. Their objective is to prevent American private equity and venture capital from contributing to China’s development of cutting-edge technology that could bolster Beijing’s military capabilities. The U.S.’s efforts to maintain its technological superiority over China, including the previous ban on exporting advanced semiconductors, have been a significant factor in its relationship with Beijing.
Secretary of State Antony Blinken is scheduled to visit Beijing this weekend, where he is likely to face criticism from Chinese officials who view investment restrictions as American attempts to obstruct Chinese economic growth. U.S. officials, however, present the forthcoming capital controls as a targeted measure aimed at countering national security threats. They have been careful to establish investment rules that do not jeopardize broader investment and trade flows between the two largest economies in the world. Nevertheless, the Biden administration has faced challenges in distinguishing between technology that could benefit Beijing’s military and technology used exclusively for commercial purposes, particularly in the field of AI.
The executive order is anticipated to include a one-year pilot program that will prohibit investments in advanced semiconductors and quantum computing. Some forms of AI may also be subject to new disclosure requirements or even outright bans. Defining AI has proven to be a complex task since it encompasses a wide range of applications, from everyday algorithms to autonomous weapon systems. This difficulty in defining AI has been a significant consideration for the Biden administration during the deliberations surrounding the executive order.
Martin Chorzempa, a specialist in capital and technology controls at the Peterson Institute for International Economics, highlighted the challenges by stating, “AI is in many ways a meaningless category. It encompasses everything from Netflix recommendation algorithms to autonomous weapon systems and a bunch of stuff in between. It’s extremely hard to define.”
A spokesperson for the National Security Council assured that progress was being made on the executive order, though it required time to ensure accuracy and effectiveness.
While some forms of AI are specifically developed for particular purposes, many AI companies focus on creating general-purpose systems that can be trained to perform various tasks. The increased adoption of generative AI tools like ChatGPT has led to a surge in global investment in AI startups. These tools have the potential for extensive commercial applications. However, AI models designed for computer coding, for example, could also be exploited for hacking, and models that aid in pharmaceutical drug development could inadvertently facilitate the creation of chemical weapons.
Daniel Castro, a vice president at the Information Technology and Innovation Foundation, noted the dual-use nature of AI, stating, “If you are using AI to generate imagery, that could be used to run a war simulation or it could be used for a game.”
The complexities surrounding AI investment can be observed in the case of Qualcomm, a U.S. mobile-phone chip maker, which invested in 7Invensun, an AI-powered eye-tracking startup based in Beijing. While 7Invensun’s technology could be utilized in consumer products like virtual reality goggles, it could also find its way into military and security applications, including facial-recognition cameras or training systems for fighter pilots.
Articulating and enforcing policies that ban investments in companies like Qualcomm proves challenging. Merely examining the code of an AI system does not reveal its full capabilities, as the system can be easily trained with new data for different tasks. Additionally, advanced AI systems involve complex computing processes that may yield unexpected results, making it difficult to set strict limits on their output.
A Georgetown University report revealed that between 2015 and 2021, U.S. investors were involved in 401 transactions with Chinese AI companies, and exclusively American investors contributed $7.45 billion during this period. However, the possibility of limitations on U.S. investment in advanced technology in China has already dissuaded some American firms from entering the Chinese market. The Institute of International Finance predicts that overall net foreign direct investment in China will reach its lowest levels in nearly 20 years by 2023.
A spokesperson for the Chinese Embassy in Washington expressed the view that the U.S. and China should engage in healthy economic competition, emphasizing that discriminatory restrictions targeted at specific nationalities contradict the basic principles of international trade.
To hinder AI companies in China from accessing the computing power necessary for developing sophisticated models, the Biden administration’s previous export ban on advanced semiconductors will be utilized. The ban has compelled some Chinese AI companies to develop advanced AI without relying on cutting-edge chips. Furthermore, the U.S. has previously prohibited the export of AI technology used in geospatial imagery automation. However, Biden administration officials remain concerned that U.S. investors could transfer valuable knowledge and expertise to Chinese startups, enabling them to develop their own versions of advanced technology, including semiconductors. U.S. venture-capital firms often provide invested companies with access to industry knowledge and contacts that may not be available elsewhere.
Emily Weinstein, a fellow at the Center for Security and Emerging Technology, acknowledged the potential risks associated with investment in China, stating, “There’s never going to be any investment in China that doesn’t pose any risk. What the administration needs to decide is how much risk they can take on and draw the line there.”
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Deepak Sen is a tech enthusiast who covers the latest technological innovations, from AI to consumer gadgets. His articles provide readers with a glimpse into the ever-evolving world of technology.