The recent curbs on tech investment in China by Washington, referred to as a “small yard” with a “high fence,” are designed to reduce risk without the USA completely severing ties with China. These restrictions, targeting investments in key technological sectors, aim to mitigate concerns about Chinese military advancements that could impact US national security. While these measures could strain US-China relations, analysts believe they won’t change the overall trajectory towards eventual recovery. Chinese semiconductor, quantum computing, and artificial intelligence systems companies can still find funding from various sources other than American venture capital or private equity investments.

China has a growing domestic investment ecosystem, and there are international investors from regions other than the US who might be interested in funding these companies. Additionally, the Chinese government has been actively supporting its tech industry, which could provide alternative funding avenues. While the US restrictions may create challenges, they are not the sole source of funding for these companies. However, President Joe Biden’s latest executive order imposing tech curbs on China could have several implications. The executive order could strain US-China relations further. While the order emphasises risk reduction rather than complete decoupling, it sends a signal of increased scrutiny and control over tech investments in China. This might exacerbate diplomatic tensions and mistrust between the two countries.

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The order’s focus on critical tech sectors like semiconductors, quantum computing, and AI reflects concerns about potential military applications that could threaten US national security. This move aligns with broader efforts to safeguard sensitive technology and intellectual property. Chinese tech companies in the affected sectors might face challenges in accessing US capital, potentially slowing down their growth and innovation. This could lead to a redirection of investments and research efforts towards non-US sources. One consequence may be that Chinese companies pivot towards seeking funding from other regions, including domestic sources, European investors, and alternative financing methods. This could lead to a diversification of investment channels for Chinese tech firms. But in parallel, the American executive order may prompt other countries to reconsider their own investments and partnerships with Chinese tech companies, contributing to a broader re-evaluation of global tech collaboration and supply chains. The order might also impact ongoing or future trade negotiations between the US and China.

The tech sector is a significant component of these negotiations, and the curbs could be a point of contention in discussions related to trade and technology transfer. The order’s long-term effects will depend on how China responds and adapts. It could accelerate China’s efforts to achieve self-sufficiency in critical tech areas and stimulate further investment in domestic research and development. In summary, President Biden’s executive order on tech curbs could contribute to a complex and evolving landscape of US-China relations, with potential repercussions spanning diplomacy, technology, investment, and global trade.