The Biden administration intends to increase restrictions on US investment in Chinese tech companies. In 2023, it could also prevent companies like TikTok, the popular short-video platform controlled by a Chinese group, from collecting personal data from its American users. Politicians in Washington are drawing up an ever-growing list of punishments for Chinese companies, a process that began under President Donald Trump. This had practically destroyed ZTE, a Chinese manufacturer of telecommunications equipment, by temporarily banning it from buying American chips. Huawei, its much larger counterpart, has been fighting since 2019 to keep some of its business lines running without American components.
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Instead of undoing or reducing restrictions on the Chinese tech sector, Joe Biden has only added to them. But how far will the limitations on investments in Chinese tech go? A list of several dozen companies, most of which are linked to the government, is already ready. The justification for these restrictions is to prevent US dollars from going to technology companies whose products could be used by the Chinese armed forces (the so-called “dual-use technologies”). Analysts believe this list will expand to include a much wider range of private companies, such as those working on facial recognition and other forms of AI.
The new US measures will accelerate the gradual decoupling of the world’s two largest economies. While imposing these new restrictions, the United States will endeavor to verify more seriously their implementation, which is not always respected. Investigation from the Wall Street Journal reveals, for example, that many of the high-tech products that American companies are prohibited from selling to Chinese companies continue to cross the Pacific. The need to show more firmness towards China is one of the rare subjects of bipartisan agreement in Washington. And if tensions continue to escalate around Taiwan, restrictions on tech will get even tougher.
For its part, China will continue to encourage its technology industry to focus less on consumer Internet services, such as e-commerce or meal delivery, in favor of Chinese-specific innovations in “deep technology”, such as semiconductors. and AI, in order to advance China towards its goal of technological self-sufficiency. On Sept. 6, President Xi Jinping said the country should “mobilize all its resources to achieve decisive technological breakthroughs.” Analysts at brokerage firm Jefferies predict that many of China’s leading AI and software companies will receive new government grants and other support in the coming months to promote research and development.
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Will it work? China’s tech sector is at the start of what Xi Jinping called a “new industrial revolution” based on AI and smart manufacturing. But its brutal intervention in the country’s tech industry risks stifling innovation and entrepreneurship. And some analysts say the allocation of public resources to spur domestic innovation has been ineffective. Yet, as with other policies closely associated with Xi Jinping, it seems unlikely that China will change course in 2023.
Don Weinland, Chinese finance and business journalist for The Economist