US intensifies crackdown on Chinese tech companies
Move will only hurt Washington by shutting US investors out of lucrative market, experts say
Published: Dec 16, 2021 11:17 PM Updated: Dec 17, 2021 05:50 PM
US DJI Illustration: Tang Tengfei/Global Times
US DJI Illustration: Tang Tengfei/Global Times

The US government's attempts to crack down on China's high-tech sector have shown a tendency to intensify in scope and frequency in recent days, with the Biden administration on Thursday moving to ban a string of Chinese tech companies from receiving US capital and supplies, just days after Chinese artificial intelligence (AI) giant SenseTime was put on a US investment blacklist.

However, such a move will bring more harm to US firms than to the Chinese economy, as US investors will be forced to give up many chances to reap profits in China's rapidly developing high-tech sectors, experts said. 

The US Commerce Department announced on Thursday it will place export restrictions on several Chinese companies that use biotechnology and other technologies for national security reasons, including what it claimed were their roles helping the Chinese military and alleged human rights abuses against "ethnic and religious minority groups."    

According to a report by the Financial Times, the US Treasury will place eight Chinese tech companies on an investment blacklist, the latest example in a string of efforts undertaken by the Biden administration to crack down on China's technology firms. 

The eight firms include China's drone manufacturing giant DJI, facial recognition software company CloudWalk Technology and Yitu Technology, an AI company. 

The US government blacklisted those companies from US investment on the alleged grounds that they are involved in the surveillance of people in Northwest China's Xinjiang Uygur Autonomous Region, the aforementioned report said. 

The eight firms had already been placed on the commerce department's "entity list", which restricts US companies' supply of products or technologies to the companies. 

Leon Technology published a statement on Wednesday saying that its business does not involve US markets, and the investment blacklist would not have a major impact on the company's operation, products and services or its business performance.

DJI declined to comment when contacted by the Global Times.

The Financial Times report also noted that the US commerce department plans to place more than two dozen Chinese companies on the entity list to restrict US companies' exports to them, including some involved in biotechnology. 

Escalating sanctions 

Such measures are a reflection of the US government's attempts to expand its crackdown on China's high-tech sector from a focus on upstream products, such as chips, to the entire high-tech industry chain, after finding itself increasingly lacking in trade tools to suppress the Chinese economy. 

"Since the US cannot afford to decouple with China in trade ties, it will do everything to suppress Chinese companies in the field of science and technology," Cui Hongjian, director of the Department of European Studies at the China Institute of International Studies, told the Global Times on Thursday. 

Earlier on December 10, the US government placed Chinese artificial intelligence giant SenseTime on an investment blacklist. SenseTime postponed its IPO in Hong Kong following the move. 

The US government has also taken a series of measures to suppress China's tech companies such as Huawei and TikTok, including restricting local supplies to them and forcing them to delist from US stock markets. 

According to Cui, the US government sees competition in the field of science and technology as a key factor in whether it can maintain the position of global dominance, and in areas where they think China has a chance of surpassing the US, such as drones and AI technologies, the US will launch crackdown measures on them, whether those companies have business in the US or not. 

"The US logic is that it will cooperate with China in areas like climate change, but in the technology sector, they will only view China as a competitor," Cui said. 

Dong Dengxin, director of the Finance and Securities Institute at the Wuhan University of Science and Technology, also told the Global Times that the US fears China's military capabilities will be enhanced through technological progress. 

"US President Joe Biden might make some gestures to ease tensions with China as a sort of tactic, but the hard-line attitude adopted by the US government toward China won't easily subside," he said. 

Impact limited 

According to experts, such investment bans will restrict capital from flowing to China's tech companies, one of the favorite investment targets for US venture capital institutions in recent years. As a result, domestic tech startups going through initial rounds of financing will be impacted to some extent. 

However, this impact will be limited as there are alternative financing channels, including investors from countries other than the US and increasingly mature domestic venture capital investors, the analysts said. 

"For tech companies that are already listed on non-US stock markets, or those that have already grown into industrial unicorns like DJI, the impact of such an investment ban is almost negligible," Dong said. 

Given this premise, Dong said that none of the eight aforementioned tech companies will suffer major impacts from the move, as none of them is listed in the US, and all of them have developed well enough to attract domestic venture capital. 

In general, China's AI industry will also manage to grow independently despite US sanctions, as it does not rely on US supplies as much as other industries, such as mobile phones. 

"AI products usually don't need small chips like mobile phones do, and therefore companies don't have to import US chips in large quantities," Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at Renmin University of China, told the Global Times on Thursday. 

The analysts also stressed that the US will only hurt itself by stemming capital flow to China's tech companies, as such actions would not only deprive US companies from sharing the gains made by Chinese tech firms, but also ruin the reputation of the US "free" market.

"When private companies become political vassals, it will only shake the base of the US economy and society as being so-called market-orientated," Dong Dengxin said. 

He predicted that the intensified crackdown will also discourage Chinese companies from seeking listings in the US, which will again hurt Wall Street investors' profit-making opportunities.