US restrictions to undermine efforts to ease tensions with China: Report

The Biden administration's plans to impose new restrictions on American investments in Chinese companies involved in quantum computing, artificial intelligence and semiconductors could undermine US' efforts to ease tensions between Washington and Beijing, The New York Times reported.

The looming restrictions were discussed during US Treasury Secretary Janet L Yellen's meetings with senior Chinese officials during her recent visit to China, according to the report. The US Treasury Department has sought to narrow the scope of the restrictions which are aimed to target private equity and venture capital investment in a few limited but highly strategic sectors.

The US Treasury Department has tried to ease concerns within China. However, any such actions by the US government are expected to anger China and will be the first test of the new channels of communication that the two nations are trying to restore, The New York Times report.

 

Mark Sobel, a former longtime Treasury Department official who is now the U.S. chairman of the Official Monetary and Financial Institutions Forum, said, "They're going to have concerns about our investment policies toward China." Sobel added, "The Chinese have their issues with us, and both sides have a pretty clear understanding that there's tension," according to The New York Times report.

Tensions between China and US started in 2022 after then-US House of Representatives Speaker Nancy Pelosi visited Taiwan, which Bejing claims is part of its territory. The tensions between the two nations flared after the Chinese balloon entered US air space, Beijing's partnership with Russia during the conflict in Ukraine and China's continued threatening of Taiwan.

The US government in recent months have been making efforts to halt a further decline in its ties with China. However, new investment restrictions from the US could escalate the tit-for-tat measures that the two nations have been implementing just as they are making efforts to set a "floor" under their relationship, The New York Times reported.

The Biden administration appears to have delayed announcing the restrictions considering US' strained ties with the US. The private sector will have time to comment on the limits once the restrictions are proposed. If the Biden administration to further delay announcing the restrictions, it will face mounting pressure from US lawmakers, who are considering their own broader measures on investments made in China.

Lawmakers and other supporters of the measures have said that the current system allows US capital to flow to China and finance technologies that could ultimately pose a threat to US national security. Notably, the US has already banned its companies from directly selling certain advanced technologies to China and monitors the investments that Chinese companies make in America for potential security risks.

Members of the Biden administration spent much of last year assessing how broadly to impose investment restrictions, with officials speaking to business executives to get their views on the effect the decision could create, as per the news report. The US government seems to have landed on a measure that requires companies to give more information to the government about their planned investments in China and banning investments in few sensitive areas.

Earlier in May, Paul Rosen, the assistant secretary of the Treasury for investment security, said the administration was "working to craft a narrow and focused program" to restrict investment in certain sensitive technologies with national security implications. Rosen made the remarks during a hearing before the Senate Banking Committee, The New York Times reported.

Last week, Yellen on CBS' "Face The Nation" said, "I explained that President Biden is examining potential controls on outbound investment in certain very narrow high-technology areas, and that if we go forward with these, that they will be indeed very narrowly targeted." She further said that the controls will not have a significant impact on the investment climate between China and US.

A US senior Treasury Department official said that Chinese officials had heard United States justification for the possible restrictions. However, it was not clear if Beijing agreed with the rationale, the report said. Chinese officials are also watching warily for the Biden administration to announce a series of export restrictions on the type of advanced chips that can be exported to China.