Executive Order on Outbound Investment 有关对外投资的行政令
A new executive order signed by President Biden in August 2023 restricts outbound investment to China in several critical cutting-edge technologies with military, surveillance, and cyber-enabled capabilities, deemed critical to US national security interests. Citing an “unusual and extraordinary threat” to the national security of the US, Biden declared a national emergency alongside the executive order.
The latest move in a series of US policies aimed at limiting the sharing of advanced technology with, the executive order is apparently designed to initiate the process of enacting restrictions on US investment in China in three “sensitive” technology sectors, focusing on specific end uses of these emerging technologies, and restricting military applications of (1) semiconductors and microelectronics, (2) quantum information technologies and (3) artificial intelligence systems (“AI”).
US Investor Restrictions 对美国投资者的限制
Under the executive order, US investors, including private equity, venture capital and joint venture firms, will be restricted from new investments in Chinese semiconductor and quantum computer companies. In this regard, it is noted that certain US investors have already taken actions, such as Sequoia Capital sawing off its Chinese branch. Furthermore, Americans doing business in China must notify the US government of any direct investment in AI and the semiconductor field. Investment in technology destined for military or surveillance is banned while investment in less sensitive areas are permitted with government notification.
Narrowly Limited Scope of Investment Controls 投资管制的范围受到严格限制
The program of outbound investment restrictions proposed by the executive order follows on other regulatory regimes such as traditional US trade export controls, US sanctions programs and inbound foreign direct investment controls yet creates another level of controls. The proposed rules focus on limiting access to US capital flows and intangible benefits such as know-how, market access, investment and talent networks, and other managerial expertise.
The executive order states that it intends to narrowly limit the scope of the proposed investment restrictions to preventing China’s military advancement and reduce the US national security risk, rather than causing China economic harm. Also, heated lobbying efforts from the private sector has also limited the scope of the proposed investment controls.
Investors who violate those rules may face civil penalties (with criminal penalties being referred to the US Justice Department) and fines, and be compelled to divest their stakes. The rules do not target less involved investment in publicly traded securities such as Chinese stocks and bonds.
Timing – Public Notice Before Implementation 时间安排-实施前的公示
Tasked with implementation of the executive order, Treasury has issued an advance public notice with details on the proposed rules and solicited public comment. The outward investment program will be implemented after this public notice and feedback period (ending September 28, 2023). No date has been set yet for the actual rules to take effect and it may take months before the final rules are implemented.
Proposed Executive Order Outbound Investment Controls 拟议的对外投资管制行政令：
- Semiconductors 半导体
With respect to investment bans in the semiconductor industry, the US Treasury is considering banning US investment in the same areas covered by the Commerce Department’s October 2022 semiconductor export controls.
Specifically, Treasury is planning to prohibit US entities from investing in Chinese technology related to the design and manufacture of advanced logic and memory chips, the installation of supercomputers powered by advanced chips, and the manufacture of these advanced chips.
- Artificial Intelligence 人工智能
The executive order’s restrictions on AI investment are significant not so much for its denial of US capital to Chinese AI startups, as much as they foreshadow the likelihood of further US investment restrictions and export controls on AI for China.
The scope of these likely AI export controls will be in part determined by the comments which the Treasury receives on its advance notice. As they formulate the executive order, the Biden Administration is trying to determine how to differentiate AI end uses that pose a national security risk from AI used for everyday business reasons.
- Quantum Information Technologies 量子信息技术
Outbound investment controls on quantum information technologies likely foreshadow complementary quantum export controls on China.
Otherwise, restrictions on quantum may be less significant than restrictions on semiconductor and AI investment in China given the current lack of US investment in Chinese companies developing quantum and practical applications of quantum computers are very rare.
More Restrictions to Come? 未来会有更多限制吗？
When it comes to protecting advanced technologies critical to US national security, the Biden administration speaks of maintaining a “small yard with a high fence”. Even so, US lawmakers are demonstrating an interest in expanding the restrictions and broadening the outbound investment screen to include key sectors identified by the Biden administration including semiconductors, AI, robotics, biotechnology, autonomous vehicles, advanced aviation, and energy, and to additional countries, including Cuba, Iran, North Korea, Russia, and Venezuela.
These expanded export controls will likely lead to increased and focused enforcement actions targeting Chinese entities and further accelerate the greater separation of the US and Chinese economies or “decoupling”.
While some lawmakers seek a more complete “decoupling”, others argue that when access to foreign technology know-how is eliminated, these controls could just contribute to Chinese growth and self-sufficiency.
Suggested Risk Mitigation Measures: 风险缓释措施建议：
Given these recent measures, sensitive technology companies in the US involved in outbound investments should consider the risk factors and undertake risk mitigating steps including:
a. Clarify company’s current and potential investments status and US persons involvement in China
b. Identify company’s investments that may fall within the proposed executive order regime’s outward investment regime’s ambit
c. Apply risk mitigation measures in company’s investments in the sensitive technology sectors and areas
On the flip side of the same coin, Chinese companies that fall into those restricted categories may want to review their shareholders base and future financing plans to evaluate the potential impacts. There may be opportunities for non-US investors to gain access to investment into those Chinese companies from which the US investors are withdrawing. It is advisable for non-US investors to engage legal counsel to investigate and conduct due diligence before such investment, in light of the fast-changing CFIUS and other relevant rule and regulation.