WEBVTT 00:01.933 --> 00:04.000 align:left position:10% line:77% size:80% AMNA NAWAZ: The Biden administration released a long-awaited executive order 00:04.000 --> 00:09.000 align:left position:10% line:77% size:80% today aimed at curbing China's military development. These new rules mark a first 00:10.966 --> 00:14.466 align:left position:10% line:77% size:80% step by the U.S. government to clamp down on overseas investments by American firms. 00:15.600 --> 00:17.600 align:left position:20% line:83% size:70% Laura Barron-Lopez has the story. 00:17.600 --> 00:21.100 align:left position:10% line:77% size:80% LAURA BARRON-LOPEZ: The new executive actions limit investments in China by 00:21.100 --> 00:24.833 align:left position:20% line:77% size:70% private equity and venture capital firms in three high-tech sectors, 00:24.833 --> 00:29.800 align:left position:10% line:77% size:80% quantum computing, artificial intelligence, and semiconductors and microelectronics. 00:29.800 --> 00:34.800 align:left position:10% line:77% size:80% It would also require firms to disclose investments in other Chinese industries 00:36.000 --> 00:38.566 align:left position:20% line:83% size:70% not restricted under the president's order. 00:38.566 --> 00:42.066 align:left position:10% line:71% size:80% Here to discuss is Chris Johnson. He had a 20-year career in the U.S. intelligence community, 00:44.100 --> 00:47.333 align:left position:10% line:77% size:80% where he focused on China. Now he runs his own consulting firm, China Strategies Group. 00:48.500 --> 00:50.033 align:left position:20% line:83% size:70% Chris, thanks so much for joining us. 00:50.033 --> 00:53.766 align:left position:10% line:83% size:80% What is the significance of this executive order limiting 00:53.766 --> 00:57.566 align:left position:10% line:83% size:80% American developments in China? And how will it be implemented? 00:57.566 --> 00:59.533 align:left position:20% line:77% size:70% CHRISTOPHER JOHNSON, President and CEO, China Strategies Group: Well, 00:59.533 --> 01:02.100 align:left position:10% line:77% size:80% I think its main significance is that it's finally managed to get out the door. 01:02.100 --> 01:06.966 align:left position:10% line:71% size:80% This is something that the administration has been working on for nearly two-and-a-half years now of 01:09.400 --> 01:12.200 align:left position:10% line:71% size:80% its tenure, and then, of course, if we count the time of basically the entire Trump administration, 01:14.166 --> 01:16.100 align:left position:10% line:77% size:80% where they were also thinking about such an executive order and working on it then. 01:16.100 --> 01:18.633 align:left position:10% line:77% size:80% So we're talking about a sum total of six-and-a-half years in the making. 01:18.633 --> 01:23.633 align:left position:10% line:71% size:80% So it's quite significant in that regard. It's important as well, obviously, because it's the 01:23.633 --> 01:27.033 align:left position:10% line:77% size:80% next step, really, in the process that we have seen under the Biden administration 01:27.033 --> 01:31.233 align:left position:10% line:77% size:80% of trying to control Chinese ability to develop some of these core technologies, 01:31.233 --> 01:36.233 align:left position:10% line:77% size:80% most specifically, things that might have military application, semiconductors, in particular. 01:38.200 --> 01:40.166 align:left position:10% line:77% size:80% That's where the executive order is going to be the strictest in terms of 01:40.166 --> 01:44.833 align:left position:10% line:77% size:80% actual prohibitions of investments, and then also these new and emerging technologies, 01:44.833 --> 01:47.766 align:left position:20% line:77% size:70% of course, of artificial intelligence and quantum computing, as you said. 01:47.766 --> 01:52.166 align:left position:10% line:71% size:80% LAURA BARRON-LOPEZ: The administration has made clear that these actions are meant to stop 01:52.166 --> 01:57.133 align:left position:10% line:77% size:80% China from using U.S. technology to modernize their military and intelligence capabilities. 01:59.033 --> 02:03.233 align:left position:10% line:77% size:80% How much American money is actually going to develop those technologies in China? And 02:05.166 --> 02:10.033 align:left position:10% line:77% size:80% will these new restrictions actually impact China's ability to advance their technology? 02:11.600 --> 02:14.166 align:left position:10% line:89% size:80% CHRISTOPHER JOHNSON: Yes. 02:14.166 --> 02:17.433 align:left position:10% line:71% size:80% Well, on the scale of total investment that the Chinese are making in these core technological 02:17.433 --> 02:22.133 align:left position:10% line:77% size:80% areas, the actual U.S. dollar flow into those investments is relatively small. 02:22.133 --> 02:26.700 align:left position:20% line:71% size:70% The Chinese government, of course, is pouring a ton of money into all three of these areas, 02:26.700 --> 02:30.600 align:left position:10% line:77% size:80% largely through its industrial policies, which are of great concern to the U.S. 02:30.600 --> 02:33.233 align:left position:20% line:83% size:70% So, the actual amount of money, by comparison, 02:33.233 --> 02:37.433 align:left position:10% line:77% size:80% that the U.S. is putting in is small. But it's not really the money necessarily that I 02:37.433 --> 02:41.333 align:left position:20% line:71% size:70% think the administration and other folks who are looking at this closely, especially on the Hill, 02:41.333 --> 02:46.333 align:left position:10% line:77% size:80% have been focused on. It's really the knowledge, the special capabilities, 02:48.366 --> 02:51.800 align:left position:10% line:77% size:80% the sort of things that a U.S. venture capital or other firm can bring to the table in terms 02:53.766 --> 02:58.233 align:left position:10% line:77% size:80% of expertise that might actually help the Chinese make advances in the technology itself. 02:58.233 --> 03:03.200 align:left position:10% line:77% size:80% So, in other words, to facilitate making the investment that the U.S. investor 03:05.233 --> 03:07.600 align:left position:10% line:77% size:80% is making profitable, they are willing to share their ecosystem, if you will, 03:07.600 --> 03:11.400 align:left position:10% line:77% size:80% of technological and other expertise. And that's really what the concern is. So, 03:11.400 --> 03:14.633 align:left position:20% line:77% size:70% while the actual dollar amount is small, that's been the concern. 03:14.633 --> 03:19.633 align:left position:10% line:77% size:80% And in terms of the ability to impact Chinese developments, it certainly will not ease 03:21.600 --> 03:23.733 align:left position:10% line:77% size:80% their ability to do so. One of the things that's been most challenging for them is, 03:23.733 --> 03:27.900 align:left position:20% line:71% size:70% they want to obviously have access to foreign direct investment coming into these technologies, 03:27.900 --> 03:32.500 align:left position:10% line:71% size:80% and especially those expertise categories that I mentioned a moment ago, coming their direction. 03:32.500 --> 03:36.300 align:left position:10% line:77% size:80% They will continue, of course, to pursue these technologies, because they're critical, 03:36.300 --> 03:40.966 align:left position:10% line:77% size:80% in their minds, for not just their military advancement, but also their economic development 03:40.966 --> 03:45.300 align:left position:10% line:77% size:80% in the 21st century, because, obviously, these are the three core technologies 03:45.300 --> 03:49.633 align:left position:10% line:77% size:80% that are looking like they will define the knowledge-based economy of this century. 03:49.633 --> 03:53.900 align:left position:10% line:77% size:80% LAURA BARRON-LOPEZ: Senior administration officials told us today that it took a 03:53.900 --> 03:57.566 align:left position:10% line:77% size:80% thoughtful and deliberative process to get to this executive order. 03:57.566 --> 04:02.533 align:left position:10% line:77% size:80% Could you explain some of that process that they underwent to actually reach this point? 04:03.666 --> 04:04.800 align:left position:20% line:83% size:70% CHRISTOPHER JOHNSON: Yes, absolutely. 04:06.833 --> 04:09.033 align:left position:10% line:77% size:80% And I think the administration deserves a lot of credit for this. First of all, there was 04:09.033 --> 04:13.633 align:left position:20% line:71% size:70% extensive consultation with affected parties, venture capital firms, other investing firms. 04:15.166 --> 04:18.000 align:left position:20% line:77% size:70% And they took into account a lot of their feedback in the process. 04:18.000 --> 04:22.666 align:left position:10% line:77% size:80% And, obviously, as the executive order tells us, there will be a comment period as well, 04:22.666 --> 04:25.500 align:left position:10% line:77% size:80% which will be quite lengthy. So that will be another opportunity for the 04:25.500 --> 04:30.100 align:left position:10% line:71% size:80% administration to engage with affected parties, most specifically industry and most specifically 04:30.100 --> 04:33.833 align:left position:10% line:77% size:80% the semiconductor industry in the United States, because that's the institution that, 04:33.833 --> 04:36.600 align:left position:10% line:83% size:80% as I mentioned earlier, will be the most affected, that sector. 04:36.600 --> 04:41.600 align:left position:20% line:71% size:70% So they have taken a very judicious and deliberative approach. Some critics argue it's 04:43.700 --> 04:47.033 align:left position:20% line:71% size:70% been too judicious and too deliberative, in the sense that the executive order only requires what 04:49.366 --> 04:53.233 align:left position:10% line:71% size:80% they call a sort of notice-and-go system for areas that are not prohibited under the executive order. 04:54.866 --> 04:58.566 align:left position:20% line:77% size:70% So, that is basically an entity wish - - a U.S. person entity wishing to 05:00.100 --> 05:01.600 align:left position:10% line:83% size:80% make an investment has to report to the Treasury Department about 05:01.600 --> 05:04.366 align:left position:10% line:83% size:80% what they're doing. But it's not a proper screening mechanism, 05:04.366 --> 05:09.366 align:left position:10% line:77% size:80% like had been advanced earlier, especially in some possible congressional legislation, 05:11.900 --> 05:14.633 align:left position:10% line:71% size:80% wherein they would have to screen that investment and decide whether it is allowed or prohibited. 05:17.166 --> 05:20.033 align:left position:10% line:71% size:80% Instead, it is just a notification process. And some critics have said that is too -- too loose. 05:21.200 --> 05:23.566 align:left position:20% line:83% size:70% LAURA BARRON-LOPEZ: How do you expect China to 05:23.566 --> 05:28.566 align:left position:10% line:77% size:80% view these new restrictions? And is there wide expectation that they will retaliate? 05:30.433 --> 05:33.033 align:left position:10% line:77% size:80% CHRISTOPHER JOHNSON: There definitely is. I think we should expect them to retaliate, 05:33.033 --> 05:37.300 align:left position:10% line:77% size:80% in part because they have told senior U.S. officials that they will. When Secretary Yellen, 05:37.300 --> 05:41.566 align:left position:10% line:77% size:80% our Treasury secretary, was visiting China, that message was definitely conveyed. 05:41.566 --> 05:46.433 align:left position:10% line:71% size:80% It's been conveyed to Secretary of State Blinken and other senior U.S. officials. So the Chinese 05:46.433 --> 05:50.566 align:left position:10% line:77% size:80% have made clear that this is one of many of the sort of red lines. In March of this year, 05:50.566 --> 05:55.433 align:left position:20% line:71% size:70% President Xi Jinping at a -- in comments at a legislative session said that the United States 05:55.433 --> 06:00.466 align:left position:10% line:77% size:80% and the West was acting actively to sort of suppress, contain and encircle China. 06:02.400 --> 06:04.833 align:left position:10% line:77% size:80% And, since then, we have seen them take more deliberative retaliatory actions. So, 06:04.833 --> 06:09.100 align:left position:10% line:83% size:80% one instance is the banning of sale of the semiconductor, 06:09.100 --> 06:14.100 align:left position:10% line:77% size:80% U.S. semiconductor for Micron's chips to many Chinese customers. We have seen them react 06:16.533 --> 06:18.566 align:left position:10% line:71% size:80% with restrictions on certain rare earth meddles that are critical in the semiconductor space. 06:18.566 --> 06:21.700 align:left position:10% line:77% size:80% So, they have kind of shifted gears. We have seen a step change from this sort 06:21.700 --> 06:26.133 align:left position:10% line:77% size:80% of largely rhetorical responses to actual retaliation that does matter. 06:26.133 --> 06:29.300 align:left position:10% line:77% size:80% And I would expect to see something similar like that in this instance. 06:29.300 --> 06:33.333 align:left position:10% line:71% size:80% LAURA BARRON-LOPEZ: Chris Johnson of China Strategies Group, thank you so much for your time. 06:33.333 --> 06:34.733 align:left position:20% line:83% size:70% CHRISTOPHER JOHNSON: My pleasure. Thank you.