Investors wary of further measures, stay away due to Biden’s China tech restrictions.

Investors on the Sidelines as Biden’s China Tech Curbs Raise Concerns

By Kane ​Wu and Michael ⁢Martina

HONG KONG/WASHINGTON (Reuters) – President Joe‍ Biden’s move ‌to prohibit some U.S. technology investments in China⁣ is expected to keep investors on the sidelines,​ concerned⁢ that tougher measures ⁣are ahead as tensions simmer between‍ the world’s two biggest⁢ economies.

U.S. private equity and venture‌ capital investors have already hit‌ the brakes on ‍sensitive technologies in China as relations have worsened since⁣ the administration of Biden’s predecessor, ​Donald⁣ Trump, over issues from tech to China’s​ industrial policies ⁣to national​ security.

Aiming to keep⁤ U.S. capital and expertise from⁣ helping‍ China’s ⁢military modernisation⁣ and harming U.S. national security, Biden’s executive order⁢ on Wednesday was limited, for example ⁣by applying‍ only to new investments.

But it will⁣ not be the⁤ end of⁤ measures to tighten⁣ scrutiny‍ of American investments in China, which is struggling to get⁤ back on its​ feet since the COVID-19 pandemic, dealmakers and ‍analysts say.

The order authorises the Treasury secretary to ​prohibit or restrict ‌U.S. investments in ​Chinese firms in semiconductors and microelectronics, quantum information technologies and certain artificial intelligence systems.

Congress may introduce legislation expanding on Biden’s restrictions, said Weiheng ‌Chen,⁢ senior ⁣partner and head of Greater ‍China practice at law⁣ firm Wilson Sonsini.

Indeed, congressional​ Republicans immediately criticised the order by ‍Democrat Biden ⁢as not going far enough.

“Certain U.S. investors may​ just choose to wait for the implementation‍ rules before making investment decisions in these covered sectors,” Chen said.

Shift to Yuan

Acquisitions of⁤ Chinese companies by U.S. firms have sunk almost⁢ 60% so far this year to $3.5 billion from $8.8 billion for the same period last year, according to Dealogic data, while ​deal value in the tech sector has plunged to $815 from $6.1 ⁤billion.

China-U.S. tensions and Beijing’s regulatory crackdown ​on⁢ its private enterprises have prompted many fund​ managers to pivot from the country or shift to local-currency investments.

“The situation is already ⁤very ⁢bad for dollar-based funds⁣ to invest in China’s tech sector. There isn’t much room for things to get worse,” said Beijing-based China Growth ‍Capital partner Wayne Shiong.

Biden’s move will likely make‍ China-focussed venture capital firms feel more urgency ⁢to raise⁢ yuan ⁣funds from ​Chinese‍ investors, he⁤ said.

The executive order and the prospects of ‍a pause in‍ private⁣ equity⁢ investments in China across the board come as Beijing seeks⁣ to attract capital to‍ revive‌ its slowing economy.

Pan⁢ Yuan, a researcher ⁢at the Chinese ⁢Academy of Social Sciences, a ​top government think tank, said⁣ despite Biden’s restrictions,⁤ China will maintain an open policy to attract foreign ⁣capital.

To counter⁣ the⁤ U.S. curbs, China must focus on improving its domestic technology ⁣capabilities, Pan said.

Tech Disputes

China hawks in Washington blame American⁣ investors for transferring capital and valuable know-how to Chinese technology companies that could help advance Beijing’s military capabilities. Beijing,‍ for its part, has been seeking self-sufficiency in⁣ the escalating tech disputes.

On Monday, Hua Hong Semiconductor, China’s number two chip foundry, made its Shanghai‍ market debut, ⁢raising $3 billion and ⁤joining a long queue⁣ of ‍local chipmakers to tap ⁢the stock ⁢market to fund expansion.

In response to Biden’s executive order, China’s commerce ministry said it was “gravely concerned” and ⁤reserved the right to take countermeasures.

Analysts said,‌ however, Beijing’s ⁣retaliation options are limited and would unlikely escalate the matter, especially given tight scrutiny since ​the Trump era.

“The main Chinese reaction will be to discourage other countries from‌ copying American actions,” ⁢said Derek ⁣Scissors, ‌senior fellow and⁢ expert on⁤ U.S.-China economic relations at the pro-business American Enterprise Institute.

“China could⁣ act in⁢ non-reciprocal fashion, retaliating somewhere other than on the investment side. But the executive order is barely ⁣going to do ⁢anything, and China escalating‍ would risk turning a molehill into a ​mountain.”

(Reporting‍ by‍ Kane Wu​ in Hong Kong and Michael Martina in Washington; Additional ⁣reporting by⁢ Roxanne Liu and Ziyi Tang in Beijing, Yantoultra Ngui in Singapore and Vineet Sachdev‌ in ⁤Bengaluru; Editing by Sumeet Chatterjee and William Mallard)

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