September 29, 2022

Biden Issues New Order to Block Chinese Investment in Technology in the U.S.

The move, which is bound to heighten tensions with Beijing, reflects growing unease about China’s ability to access the personal information that Americans hand over to mobile apps and other services.

WASHINGTON — President Biden signed an executive order on Thursday designed to sharpen the federal government’s powers to block Chinese investment in technology in the United States and limit its access to private data on citizens, in a move that is bound to heighten tensions with Beijing.

The new order is designed to focus the actions of the secretive Committee on Foreign Investments in the United States, created by Congress nearly a half-century ago. For years the committee’s powers were limited largely to blocking the foreign acquisition of American firms that might have a direct impact on national security — a military contractor, for example.

But the most far-reaching part of Mr. Biden’s new order, and potentially the most important element in coming months, directs the committee to consider whether a pending deal involves the purchase of a business with access to Americans’ sensitive data, and whether a foreign company or government could exploit that information.

That wording reflects growing unease about China’s ability to access the personal information that Americans hand over to mobile apps and other services. The committee, known by the acronym CFIUS, is believed to be already scrutinizing TikTok, the popular Chinese-owned video app that critics worry could expose its users’ data to the Chinese government.

So far the Biden administration has said little about its review of TikTok. In the last months of the Trump administration, there was a hasty effort to force a sale of the American operations of TikTok to a consortium of American and other Western companies; it quickly fell apart. And the deal never resolved the broader question in the expanding technology wars between Washington and Beijing: How should the United States deal with the foreign apps that are becoming embedded on the screens of Americans’ smartphones, and thus in the daily fabric of American digital life?

In recent months, evidence has emerged that TikTok employees in China had the ability to access data about Americans who signed up for the service. There is no public evidence the company has handed data over to the Chinese government, but Chinese national security laws could require the company to do so. The issue now is whether requiring the transfer of all that data to American-based servers would solve that problem, or merely mitigate it. And there are continuing questions about who designs the algorithms that track the interests and activities of Americans online.

Chinese intelligence agencies have gone to great lengths to obtain vast troves of data about Americans, including by hacking the databases of the Office of Personnel Management during the Obama administration. Before American authorities caught on, the information that 22.5 million Americans had filed for security clearances was in Chinese hands. It has never been clear what China did with that data.

The executive order, which has been anticipated for months, does not regulate “outbound investment” by American companies in foreign nations, though the Biden administration seems likely to seek new authority to regulate that as well. For years, one concern has been China’s requirement that foreign companies turn over technology as part of the price for being allowed to enter the Chinese market.

“For China, this work is about survival,” Nigel Inkster, the former director of operations and intelligence for Britain’s Secret Intelligence Service, wrote in The New York Times opinion section earlier this week, delineating covert operations by Chinese operatives to gain technology or manufacturing techniques that would speed Beijing’s way. He noted a law in China that orders Chinese citizens to help intelligence agencies, usually secretly.

The new order directs CFIUS to concentrate on specific types of transactions that would give a foreign power access to technologies that Mr. Biden has identified as critical to American economic growth. That includes “microelectronics, artificial intelligence, biotechnology and biomanufacturing, quantum computing, advanced clean energy and climate adaptation technologies,” according to a White House summary.

While China is not specifically mentioned in the order, all of those are areas are part of the “Made in China 2025” drive started seven years ago by President Xi Jinping, and they are also technologies in which the United States is now investing more federal resources.

To some degree the presidential order formalizes a new, broader interpretation of the committee’s authority that has been underway for several years. White House officials say that they believe Mr. Biden’s order to focus CFIUS on certain technologies does not require amending its authorizing laws, which date back to the group’s creation during the Gerald Ford administration.

For most of its history, CIFIUS only examined transactions in which a foreign firm sought to purchase a controlling interest in an American company that dealt in sensitive technologies. It blocked several such sales, often because it concluded that the firms provided weapons systems or products used by the intelligence agencies. (The Department of Defense and intelligence officials are members of the committee.) In other cases, American firms were required to divest themselves of a sensitive product or technology before the transaction could go through.

But over time it became obvious that a foreign firm did not need a majority share in a company in order to access key technologies. So over the past seven or so years, the power of the interagency group has expanded significantly, and it now has the power to block even a minority investment. That was driven, in part, out of fears that Chinese state-owned firms were setting up venture capital funds in Silicon Valley and beyond to get an early look at new technologies.

A White House statement said the new order would enshrine that approach, and look not at the size of the investment but at the characteristics of the technology itself, including “advancements and applications in technology that could undermine national security.”

The CFIUS members would not have to establish that a technology was currently vital to national security as long as it had that potential. For example, artificial intelligence software or quantum computers that would create strong encryption of data, or break that encryption, could trigger government action to keep the technology from the hands of Chinese or other competitors.

The order also authorizes the committee to block any deal that “erodes United States cybersecurity.” And it urges review of “incremental investments over time in a sector or technology” that could “cede, part-by-part, domestic development or control in that sector or technology.”

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