In October of the previous year, after the U.S. announced restrictions on the export of semiconductor manufacturing equipment to China, it had urged the Netherlands and Japan to follow suit. By the end of June and July this year, both countries had announced control measures for semiconductor equipment exports.
Last week, U.S. President Biden signed an executive order restricting American companies' investments in China related to semiconductors, microelectronics, quantum information technology, and artificial intelligence. The U.S. Treasury is crafting specific restriction guidelines, with new regulations expected to be finalized next year.
As with the semiconductor export restrictions, the U.S. is again urging allies to join in curbing investments in these sectors.
Responding to the U.S.'s push, the European Union was first to indicate they wouldn't immediately follow suit. Japan and South Korea are set for a trilateral summit in Camp David, Maryland, later this week, where the U.S. is anticipated to apply further pressure. Meanwhile, the UK and Australia are considering implementing their restrictive measures.
UK and Australia Ponder Following U.S. Lead
At the G7 summit in May, UK Prime Minister Sunak hinted at the UK following the U.S. in limiting investments in China's critical sectors. After Biden's executive order last week, the UK government stated it would closely monitor U.S. actions, further evaluating potential national security risks that certain investments might pose.
During Sunak's visit to the U.S. in June, the two countries inked the "Atlantic Declaration" to bolster economic security cooperation. Both nations pledged to maintain leadership in areas like semiconductors, quantum technology, AI, advanced communication, and synthetic biology, aiming to intensify collaboration.
One focus of this partnership addresses the national security risks posed by certain foreign investments. As the declaration indicated and as reported by the Financial Times, after Biden's order, the UK government is contemplating limitations on UK firms' investments in AI, semiconductors, and quantum computing, currently discussing the matter with businesses and financial institutions.
While the UK may not take action simultaneously with the U.S., with general elections looming next year, Sunak's window for action is narrowing.
As the UK demonstrates loyalty to the U.S., Australia too contemplates a similar stance. A report from Australia's Financial Review on August 14 revealed hawkish lawmakers urging the Australian government to implement similar restrictions as the U.S. concerning sensitive technology investments in China. The Australian Department of Foreign Affairs and Trade acknowledged discussions with allies, including Australia, to establish a foreign investment screening mechanism, now evaluating the impact of Biden's order.
Previously, citing national security concerns, Australia limited investments from Chinese firms, including barring Huawei from its 5G network bidding. However, the current Australian administration aims to stabilize relations with China.
With China being Australia's biggest trade partner and relations deteriorating during Morrison's term, relations have gradually improved since the Australian Labor government took office last May. Early this month, China waived antidumping duties on Australian barley imports. In response, Australia paused its WTO litigation against China, and Australian Prime Minister Albanese plans to visit China when appropriate.
EU Treads Cautiously
When Biden signed the executive order, reports emerged suggesting interest from the European Commission and Germany in implementing similar measures. Following the order's issuance, the European Commission communicated its intent to work closely with the White House, refraining from immediate restriction implementations.
However, by year-end, the EU plans to launch its proposal for restrictions. Ever since the U.S. and the Netherlands decided on semiconductor export limits to China, the EU has contemplated foreign investment restrictions.
But Valdis Dombrovskis, the EU Trade Commissioner, clarified earlier this year that while the EU aims to ensure the desired outcome of such restrictions, they also want to prevent unintended consequences that could harm the EU's investment climate and financial markets.
Last week, EU officials shared that many member states remain reserved about following the U.S.'s lead. They believe that a thorough assessment is crucial before launching any measures to avoid severe disruptions to EU trade.
Moreover, some EU nations highlighted economic differences between the EU and the U.S., pointing out fewer venture capital firms in the EU. They suggest adopting measures different from the U.S., as Biden's executive order predominantly targets private equity, venture capital, and joint ventures.
Within the EU, Germany remains divided on the issue. The Green Party, responsible for foreign and economic affairs, adopts a tougher stance on China. In contrast, Chancellor Schulz from the Social Democratic Party and Finance Minister Lindner from the Free Democratic Party are more cautious.
In May, Germany's Economic Minister Habeck expressed that Germany should follow the U.S. in limiting its firms' investments in China. Schulz's advisors are skeptical about this, with the foreign policy spokesperson for the Social Democrats emphasizing precision targeting of limited high-tech areas.
Last year, German firms invested a record €115 billion in China. By 2021, that number was projected to increase by another 15%. These investments have been primarily in the technology, automotive, and renewable energy sectors, indicating Germany's commitment to collaborating with China in areas of mutual growth and interest.
The two nations have been historically involved in a series of strategic partnerships, and recent years have only seen an intensification of these ties. With the European Union striving to balance its relationships between the U.S. and China, Germany has emerged as a key player in bridging gaps and facilitating dialogues.
Chancellor Angela Merkel has, on numerous occasions, emphasized the importance of maintaining strong economic ties with China, while also advocating for addressing issues related to human rights and trade imbalances. The nuanced approach of the German leadership has been to engage in constructive criticism while also ensuring that avenues for business and mutual growth remain open.
German firms see China as not only a vast market for their goods and services but also as a crucial partner for technological innovation. Joint ventures between German and Chinese tech giants have paved the way for cutting-edge research in fields like artificial intelligence, electric mobility, and green technologies.
However, this deepening relationship is not without its critics. Some argue that Germany is becoming too reliant on the Chinese market and may be compromising its stance on crucial issues in favor of economic gains. But supporters counter that by being an active partner with China, Germany is in a better position to influence positive changes both within China and in the global arena.
As the global landscape continues to evolve, the Sino-German relationship will undoubtedly play a pivotal role in shaping the economic and political dynamics of the 21st century."
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