S President Biden signed an executive order on August 9 that restricts new investments by American companies in certain key technology sectors in China, raising concerns about the escalation of global tensions between the two powers.
The order, which is planned to take effect next year after coordination with US companies, sends a clear political signal that US investors should steer away from China, and aims to step up the US’s “decoupling” agenda. Analysts believe the short-term impact of the restrictions on critical technology investment in China will be limited, but its long-term impact will be significant.
Amid sweeping sanctions and restrictions imposed by the US on China in recent years, US investment in China has exhibited a noticeable downward trend. According to data from the Ministry of Commerce, actual US investment in China in the first half of the year amounted to US$2.59 billion, a year-on-year decrease of 31.1 percent. A China Securities report shows that Credit Suisse data reveals that nearly 60 percent of US investment in China in the period was concentrated in industries such as consumer goods, financial services and real estate, with the high-tech sector accounting for less than 10 percent.
The move indicates that the US will continue to weaponize trade and investment issues in its efforts to decouple from China. In the long term, the US is likely to gradually expand its restrictions to secondary markets and other sectors such as biotechnology and new energy.
In response, the Chinese government announced a 24-point guideline to attract foreign investment, with measures including easier visa policies and better tax treatment. The government vowed that China is committed to high-level opening-up and building an open economic system, welcoming international investors to explore the Chinese market.
It has now become very clear that China-US competition is structural and long-term in nature, and that competition in high-tech sectors will be a key battleground. Among the pillars of the US’s global hegemony, including military, industry, finance and cultural soft power, its advantage in technology has played a fundamental role, allowing the US economy and its comprehensive national strength to maintain resilience in the long-term cycles of the world economy.
The US’s technology advantages are built upon three institutional systems – its sci-tech research and development system, higher education system and capital market system. According to some US strategists, China’s rapid rise in industrial and technological strength is based upon China’s embrace of globalization. Through decades of comprehensive learning from Western developed economies, China has established its own research and development system, higher education systems and capital market system, which closely resemble those in the West. Therefore, they argue that the best strategy to contain China’s rise is to cut the connection between China and the West, to “let China be China” again.
China must be acutely aware that these are crucial moments in history, and that the rise and fall of great powers ultimately depends on the level of innovative institutional capabilities. To counter the US strategy of containment, China must adopt a rational and pragmatic approach and endeavor to establish its own technology research and development system, higher education system and capital market system with a more open, inclusive, innovative and exploratory spirit. Whoever becomes the world’s innovation center in the next technological revolution will gain the initiative in strategic competition.