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Monitoring for an Outbound Investment Executive Order

06/29/23 4 minute read

The Biden administration is likely to continue its trend of cracking down on Chinese trade. It’s been reported that the administration is close to releasing an executive order establishing an outbound investment screening program.

The proposed executive order is being described as “reverse CFIUS,” referring to the Treasury Department’s Committee on Foreign Investment in the United States, which reviews inbound investments and can recommend that the president block transactions seen as potential security threats.

Here’s what we know about the proposed outbound investment executive order so far.

>> The Disruptive Technologies Strike Force Takes Action <<

What is the status of U.S. outbound investments in China?

Outbound investments are a business strategy in which a domestic firm expands its operations to a foreign country or invests capital in a foreign business. It can also be called outward foreign direct investment or direct investment abroad.

A report by Georgetown University looked into U.S. investments into Chinese AI companies. Researchers found that between 2015 and 2021, 167 U.S. investors participated in 401 investment transactions into Chinese AI companies. Transactions involving U.S. investors totaled $40.2 billion invested into 251 Chinese AI companies.

 

What are the details of the proposed outbound investment executive order?

The Biden administration is working to finalize an executive order to restrict outbound investments in China’s defense industry, aiming to release it later this summer, according to Axios. The goal of the proposed outbound investment review is intended to prevent U.S. capital from flowing towards America’s strategic competitors, in particular, towards China. The program would likely feature a combination of agency screening in targeted sectors, with the ability to block certain investments, and monitoring, which would be used to inform the further improvement and expansion over time.

Reportedly, Biden officials have worked to convince European and G7 allies to coordinate their efforts which has slowed down the release of the U.S. executive order that has been in talks for several months.

>> The American and Chinese Semiconductor Industries Undergo Massive Shift <<

The concern is not only that Chinese companies receive U.S. capital, but that it can also lead to improvements in strategic technologies. The program would focus on technology companies, but it might be expanded to encompass other sectors relevant to national security, which can involve everything from steel manufacturing to banking and financial services to biotechnology.

The outbound investment executive order is just one example of the administration’s attempt to protect critical technologies. For example, in October, the Commerce Department announced new export controls on semiconductor technologies as a way to slow China’s military development. The CHIPS and Science Act is another example of the administration’s dedication to supporting U.S. businesses in competition with China.

The Sayari team will continue to monitor for updates on this potential executive order and will continute to provide content around outbound investment screening. In the meantime, watch our discussion with Chris Miller, respected economic historian and acclaimed author of Chip War: The Fight for the World’s Most Critical Technology, to learn more about this administration’s approach to competition with China and its impact on the semiconductor industry.

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