POLITICO : White House nears unprecedented action on U.S. investment in China The White House is briefing industry on coming rules to govern American investments in China.

 White House nears unprecedented action on U.S. investment in China

The White House is briefing industry on coming rules to govern American investments in China. But some key details remain up in the air.

President Joe Biden participates in a virtual meeting with Chinese President Xi Jinping.

President Joe Biden participates in a virtual meeting with Chinese President Xi Jinping at the Roosevelt Room of the White House on Nov. 15, 2021. | Alex Wong/Getty Images

By GAVIN BADE

04/18/2023 04:31 AM EDT

President Joe Biden’s administration has been divided at the highest levels for years over how aggressively to limit economic engagement with China. But officials now appear to be nearing an agreement on one key effort to curtail Beijing’s technological and military rise.

Unprecedented rules limiting American investments in China are expected later this month — and the administration has begun briefing industry groups like the Chamber of Commerce on the broad outlines of the executive order, which is expected to require companies to notify the government of new investments in Chinese tech firms and prohibit some deals in critical sectors like microchips.

The developments come at a particularly delicate moment for the administration, which has been trying to smooth tensions and maintain trade ties with Beijing as both economies teeter on the brink of recession. That tightrope walk highlights the challenges facing Biden’s escalation of efforts to rein in one of the world’s largest military and economic powers. Anti-China fervor is at a peak among lawmakers and the public after the Chinese flew a spy balloon over the U.S. in February. But aggressive actions to sever the relationship could risk plunging both nations into a downward economic spiral.

Biden’s economic team last week publicly took a less aggressive line as world economic policymakers convened in Washington for meetings of the International Monetary Fund and World Bank, where concern about China’s role as a leading global lender looms large. At the time, China released new customs data showing trade with the West — both the U.S. and Europe — dipped in the first quarter, fueling fears of economic slowdown and separation.

“It is important for the U.S. to be clear [that] we do not seek to decouple from China or seek to limit China’s growth in any way,” Jay Shambaugh, Treasury’s undersecretary for international affairs, said during a discussion at the Brookings Institution last week. Though the U.S. will sometimes “take targeted national security actions” aimed at Chinese firms, like last year’s trade rules targeting Chinese microchip makers, those policies are “not things we’re doing to benefit the U.S. economically vis-a-vis China.”

The comments were just some of the latest from Biden’s team, which has emphasized for months that they are not interested in a major decoupling of the world’s biggest economies. But despite the conciliatory tone, the U.S. is preparing a series of actions targeting critical parts of the Chinese economy. In addition to the expected executive order on investments, it is also considering a potential ban on the widely popular Chinese-owned app TikTok. And a senior trade official said last week that the U.S. could also hike tariffs on China to express its “displeasure” with Beijing’s failure to live up to its so-called Phase One trade deal, signed under then-President Donald Trump.

Those moves would come on the heels of aggressive trade action last year, when the administration put in place new export rules that explicitly sought to undermine Beijing’s prized microchip sector and passed massive industrial policies aimed at breaking reliance on the Chinese economy. At the time, national security adviser Jake Sullivan was clear that the goal of the strategy was to preserve America’s competitive edge in emerging high-tech industries, even if Washington does not pursue a broader decoupling.

“We must maintain as large of a lead as possible” in high tech sectors like microchips, Sullivan said, previewing new Commerce Department rules released in October that sought to grind Chinese chip development to a halt.

The administration insists that its economic, diplomatic and security leaders are united on China and that recent statements do not represent a shift in rhetoric or policy. But they also acknowledge that policy discussions continue over the scope of the executive order to regulate U.S. investment and other initiatives.

“We want to make sure we’re getting it right,” a senior administration official, granted anonymity to discuss policy discussions, said of the long-delayed executive order on American investments in China. “We want to make sure we’re consulting with allies, consulting with industry along the way, and then go through the regular order processes as regulations do. But I don’t think there’s really been any shift in any of those discussions now.”

Biden and Chinese leader Xi Jinping’s meeting last November on the sidelines of the G-20 summit in Bali marked a turning point in the tone from both sides. At the time, the two leaders pledged to put a “floor” on the souring relationship after the U.S. chip rules and then-House Speaker Nancy Pelosi’s trip to Taiwan brought the diplomatic relationship to a low not seen in decades.

The detente was supposed to be marked by the first trips to China for key members of Biden’s foreign policy and economic teams — Treasury Secretary Janet Yellen and Secretary of State Antony Blinken. But the road to rapprochement hit a series of speed bumps.

In February, a suspected Chinese spy balloon floated over the continental U.S., igniting a firestorm of criticism from Capitol Hill and the White House. Yellen and Blinken’s trips were subsequently postponed, and the Biden administration sanctioned Chinese firms connected to the balloon incident. The Chinese government’s economic overtures to American businesses and policymakers — ongoing since the Biden-Xi meeting — dried up as well.

But now it appears the Biden administration is eager to reopen the economic dialogue. Administration officials have tried in recent weeks to reschedule the Cabinet members’ trips to Beijing. Though they have so far been rebuffed, China watchers say Beijing is likely to come back to the table soon.

“Beijing policymakers definitely are eager to get the U.S. to loosen its restrictive policies on China trade and investment,” said Ho-fung Hung, a professor at the Johns Hopkins School of Advanced International Studies focused on China’s economy. “With the worsening unemployment problem, debt crisis, and the urgency of recovery from the Covid lockdown, Beijing is desperately looking for ways to jumpstart its economy, at least to make sure it won’t worsen.”

The desire to renew in-person dialogue has its limits. At the same time, the White House is also pushing ahead with the first wide-ranging government oversight of American business in China.

Since the Trump administration, national security lawmakers and Cabinet officials have sought to craft new rules to oversee — and potentially block — U.S. investments in Chinese tech sectors. The goal is to prevent American firms from funding or developing tech that can later be used by the Chinese military.

Biden’s executive order scrutinizing U.S. investment in China was originally expected to be finalized last year. But that action was delayed as NSC officials clashed with the Treasury Department over which Chinese sectors the new oversight should target — and whether the government should have the power to prevent American business deals in China, or merely oversee them.

That debate has spilled into the new year, further delaying the release of the executive order. POLITICO reported in February that the White House is planning to announce a scaled-back executive order focused on disclosure and transparency by the end of April. While policymakers last year considered including up to five major Chinese industries — microchips, artificial intelligence, quantum computing, biotechnology and clean energy — in the order, the biotech and clean energy sectors are now likely to be left out of the program.

Biden’s economic officials have briefed industry groups in Washington on the broad contours of the order in recent weeks, a senior administration official confirmed. While some aspects of that order are still being finalized, the official said that it would likely include at least some prohibitions on U.S. investments in Chinese tech in addition to notification requirements for new deals.

“When Congress got close to passing an outbound investment provision that would have rode along in the CHIPS bill, that [amendment] included only notification,” the official said. “We noted publicly at the time that we thought any kind of regime based on notification would need to be complemented by a narrow, but tailored, set of prohibitions as well. So nothing has really shifted since.”

FILED UNDER: WHITE HOUSE, CHINA, JOE BIDEN, JOE BIDEN 2020, XI JINPING

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