US limits investments in China’s cutting-edge industries

U.S. President Joe Biden announced an executive order to constrain U.S. investors from funding China’s three core technologies, including AI, quantum computing, and advanced semiconductors. In detail, within the following year, U.S. venture capital and private equity firms will not be allowed to invest in Chinese businesses in the fields of integrated circuit design for cutting-edge semiconductors, supercomputers, and quantum sensors. Even met with opposition from big investors on Wall Street, the U.S. government has made it clear to put a limit on private-sector investments.

This executive order is deemed one of the most stringent measures to completely block any capital inflow following the earlier decision to control semiconductor equipment exports. Aimed at promising technologies, the measure seemingly intends to sever financial resources flowing into China, taking another step forward from the screening procedures tightened last year for overseas investment with the country in mind. If U.S.-led global investors step back, technological development and advancement will inevitably be held back in China. It will also be difficult for Chinese companies to draw investment from their U.S. counterparts and gain access to intangibles and technological know-how in a joint venture agreement. It may signal an end to global profit models combining Chinese tech firms and U.S. investors.

From the perspective of the South Korean government, things can become tricky if Washington asks it to cooperate on this matter. Voices are already growing across Washington that the Biden administration should ask its allies to take similar measures. Also, chances are the U.S. government will continue to add more countermeasures against China across various fields, which it has recently sought to expand and tighten. Despite the recent visits by U.S. high-ranking officials to China to keep their relations intact, there seems to be little change made in Washington’s hardline stance.

The ripple effects of the “de-risking” steps taken by the United States and other Western countries will gradually become palpable over the long term. It may be a hasty and risky response to look narrowly at some fragments of the whole picture and conclude that they will only affect South Korea to a limited degree. In the technological battle between Washington and Beijing that will last several decades, Seoul must take a thorough look at opportunities and risks and accordingly detail economic and diplomatic strategies. At the same time, it needs to respond nimbly by making the country an environment friendly to overseas investors leaving China.