Can the U.S.’ Allies Follow Its Lead?
Prior to issuing the Outbound Order, the Biden administration had been pushing its allies to adopt similar regulations to restrict investment in China’s technology industry. It is fair to say that any unilateral action on the part of the U.S. would appear weak without the help of its allies, so it is doing its best to ensure that other countries do not step in to fill any investment gaps left by American companies. The U.S. Treasury has noted that the European Commission and the United Kingdom have started deliberations on whether and how to respond to foreign investment risks.
The European Union: Acknowledging the Loopholes but Not Immediately Following Suit
On Jan. 24, 2024, the European Commission published a “White Paper on Outbound Investments” (hereinafter referred to as the “White Paper”) aimed at strengthening the EU’s economic security interests. This marked the first time in its history that the EU reviewed the debate on whether and how to restrict EU foreign investment.
The White Paper acknowledges that the EU currently has a double regulatory loophole: Neither the EU’s dual-use export control system nor its introduction of regulations to review its foreign direct investment framework currently govern outbound investments, thus potentially risking a leakage of “emerging and sensitive technologies.”
But as to whether and how to implement this type of policy, the EU clearly believes that it needs to make assessments and decisions independently because, while such policies may have a huge impact on EU business, the differences between the U.S. and EU economies also require different approaches. The European Commission acknowledges that, due to the lack of any systematic review and assessment of outbound investment from EU member states, it does not have detailed data on foreign investment flows.
The White Paper sets out a timetable for relevant discussions and consultations aimed at defining the scope of its decision-making, and it is expected that the European Commission will assess the need for a policy response in this area — and its possible contents — in the autumn of 2025. In other words, the EU is “not immediately following suit” on U.S. policies.
The United Kingdom: Increasing Restrictions, but with Circumspection
In April 2024, the British government stated that it would tighten restrictions on trade and investment with China, which to some extent fulfilled then Prime Minister Rishi Sunak’s promise to President Joe Biden. Prior to the formal announcement, officials from the U.K.’s Department for Business and Trade had informally notified British companies that the U.K. would be restricting investment in Chinese semiconductors, AI, and quantum computing technology.
But because major British companies had advised officials in related government-sponsored surveys not to follow the U.S.’ example, the move appeared particularly hesitant and cautious.
In announcing this move, the British government had to take into account the commercial interests of its companies. As former Deputy Prime Minister Oliver Dowden said, “The U.K. has roughly 13 trillion pounds [$16.4 trillion] worth of external investment stocks, generating hundreds of billions of pounds worth of income” and the U.K. will not surrender those interests too readily.
Additionally, the British government is unlikely to establish a new system; instead, it will use the National Security and Investment Act to review direct foreign investment in the U.K. and curb the flow of funds from strategic competitors like China into sensitive technologies. Dowden himself has specifically stated that, for him, there is a high bar for the imposition of any form of restrictions.
The Future of China’s AI Development
Given the importance of AI in the digital economy and in geopolitics, China’s AI companies will need to face and solve some thorny issues in near future: obtaining long-term and reliable computing resources; working out how to utilize Western open-source models; competing for talent; and fighting for more stable and long-term investment support in a global environment of tightening investment toward China.
The good news is that our government’s actions have sent a strong signal that it will continue to support emerging technologies, and that it believes that AI will become a major driver of future economic growth. China’s 2024 “Report on the Work of the Government,” delivered at the National People’s Congress in March 2024, hinted that China is about to launch a new policy initiative aimed at improving the competitiveness of Chinese companies in the field of AI, which may make it an “AI+” plan similar to the “Internet Plus” initiative launched in 2015.
According to the latest regulations issued on Nov. 1 by six government departments and agencies, among which are China’s Ministry of Commerce and the China Securities Regulatory Commission, China will significantly relax restrictions on foreign investments in listed companies from Dec. 2, including for investors with personal assets of not less than $50 million or with assets under management of no less than $300 million; such investors will be eligible to make strategic investments in companies listed on mainland Chinese stock exchanges. To a certain extent, this move may serve as a hedge against a current investment environment that is not exactly friendly toward Chinese companies.
In addition, with the U.S. election just concluding and Trump emerging victorious again, this will be the biggest variable in U.S. science and technology policy. The U.S. foreign investment plan will remain in effect under the next administration, but the focus and execution style of its implementation may change significantly. Moreover, given Trump’s previous manner of interacting with his “allies,” there is still a question mark over whether the latter will follow U.S. policies and create synergies with them. If U.S. allies and the Trump administration do not see eye to eye, then U.S. investment restrictions on China will not do any substantial harm.
(Part 3 of 3)
Leave a Reply
You must be logged in to post a comment.