Meet the new President, same as the old President: Biden’s expansion of Chinese investment ban

June 19, 2021

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3 min read

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What's going on here?

US President Joe Biden’s latest executive order has updated the list of Chinese companies banned from US investments, increasing the number of companies to 59.

What does this mean?

Biden has expanded the blacklist created by former President Trump. The list bans investments in both companies that support the Chinese military and that sell surveillance technologies. It also includes subsidiaries and affiliates of the companies on the earlier blacklist, with a view to further expansion. The power of enforcement has importantly passed from the Pentagon to the Treasury. Since the Treasury already oversees many of the economic sanctions employed by the US, it has a “solid legal foundation” that makes it a more efficient administrator of the ban. The order prevents Americans from investing in the banned companies, with a 60-day grace period, and a one-year period for Americans already invested in those companies to divest their assets. 

What's the big picture effect?

The decision to expand the list was taken due to the “unusual and extraordinary threats” posed by Chinese surveillance technology being used to spy on and persecute Uyghur Muslims and protesters in Hong Kong. This was termed as intensifying the struggle between autocracy and democracy.

It is unclear what exactly it means for a company to be involved in the sale of surveillance technology. While guidance is to follow on this topic, it is likely that the ban will be extremely complex to understand, as it extends even to investing in funds that invest in the banned companies. Further, some banned Chinese firms have long-term ties with American companies, such as the one between Apple and China Mobile, which could become difficult to mitigate. The Federal Communications Commission (FCC) estimated long ago that it would take up to $1.8 billion to replace the equipment of the banned firms that is embedded within US networks. Congress is yet to announce any compensatory funding.

The issues also extend to enforcement. The Treasury’s settled regulatory regime may in principle make it an efficient enforcer of the ban. However, the US Treasury administration is very closely aligned with Wall Street, which has been accused of funding the Chinese Communist Party’s economic war against the US. This could undermine the ban itself. Further, the implementation may become complicated, as the Treasury does not take a security-focused view of enforcement as opposed to the Pentagon.

It appears that Biden has made few changes to America’s hardline policy against China, instead, Biden has adopted the policy of, “Trump was right in principle, but wrong in execution”. Biden has retained import tariffs against China and even implemented a Trump order that sent subpoenas to several Chinese companies. The effectiveness of these policies remains dependent on Biden’s ability to secure the support of his European allies, as well as Asian allies such as Japan and South Korea. It is likely that he will bring this up at the G7 summit, though he may face resistance from countries like Germany that rely on China for the majority of their exports. While the ban is supposed to be targeted mainly at China without causing major fluctuation in global markets, given the market power of these countries, this is an unlikely outcome.

Report written by Roshni Suresh Babu

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