WASHINGTON — The Biden administration is weighing an executive order to vet and possibly limit U.S. overseas investment in China and other potentially hostile countries.
The White House plans to issue such an order within the next two months to curb and block outbound investment by U.S. companies and investors, people familiar with the matter said.
The initiative followed a failed attempt to pass legislation imposing similar restrictions but was dropped from a package aimed at boosting American competitiveness this summer.
The White House National Security Council declined to comment.
The new effort, like the previous legislative proposal, is raising concerns among some U.S. tech businesses and investors, who say the move is unhelpful or excessive and could undermine the U.S. economy.
“It’s important to focus this plan on the crown jewel of US technology,” said John Murphy, senior vice president for international policy at the US Chamber of Commerce. “Too broad an approach would limit U.S. government resources and could penalize American workers and companies.”
No matter what the U.S. does, targeted countries are likely to continue to acquire more technology from other countries, Mr. Murphy said.
The effort could face legal hurdles, some people familiar with the matter said.
The idea of an executive system stems from growing concern among some officials and policymakers that US investment in China could help Beijing take control of strategically important sectors, particularly semiconductors, but also areas such as artificial intelligence and quantum computing.
“It’s strange to see American financial companies writing off Chinese chipmakers,” said James Lewis, director of the technology and public policy program at the Center for Strategic and International Studies in Washington.
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Over the past few years, lawmakers have tried to pass legislation to impose such restrictions.
An earlier version of the law became a target of trade lobbyists, who argued that it was too broad and unduly restricted international trade.
A narrower version released over the summer focused more on curbing U.S. investment in sectors critical to supply chains or those involving critical and emerging technologies, such as semiconductors, large-capacity batteries, biotechnology, hypersonics, financial technologies and autonomous driving systems.
That proposal was finally dropped from the Comprehensive Competitiveness Act this summer amid some industry criticism and lawmakers scrambling to finish work on the sprawling and long-delayed package.
The US has controlled foreign investment in US entities for decades, and has restricted US companies from exporting sensitive technologies for national security reasons. The executive order—like legislation proposed last summer—would expand the federal government’s oversight of Americans’ overseas activities.
The push for closer control of US foreign trade reflects a view in Washington that China aims to replace US global leadership and that US capital and expertise are helping to build China’s military and economic power.
China’s embassy in Washington said Beijing would oppose the order, saying the move would limit formal investment in China, disrupt international trade and disrupt global semiconductor supply chains.
“The US manipulates technology and trade issues through politics, weapons and instruments, and engages in technology embargoes and embargoes to monopolize the world’s advanced technologies, maintain its dominance in the sci-tech sector, and undermine its tightly-knit global industrial and supply chains. ” said the embassy spokesperson Liu Pengyu in a statement.
Administration officials continue to discuss which agency will lead the new effort and how long that mandate might extend.
Options include the Department of the Treasury, which oversees U.S. foreign investment, as well as the Department of Commerce and the Department of Defense. The Commerce Department declined to comment. The Treasury and Defense Departments did not immediately respond to requests for comment.
Lawmakers have called for the creation of a National Critical Capability Committee to scrutinize foreign investment, without specifying which agency would lead it.
Some policy and legal specialists argue that the administration may ultimately decide to disclose only the relevant agreements, without providing any mechanism to block them. Stronger restrictions also seem possible. The administration may seek public comment on some aspects of the move, a person familiar with the matter said.
Like the previous law, the order attempts to close what investment screening advocates see as a loophole in existing government oversight. Of particular concern are joint ventures in which US companies transfer knowledge or technology to Chinese partners and Silicon Valley venture-capital firms fund US or Chinese affiliates to companies investing in China.
Late last year, for example, Sequoia Capital’s China division made at least 40 investments in companies in China’s semiconductor sector by 2020, the Journal reported.
A Sequoia spokesperson said the China unit will be run by a separate group in China, which will manage separate funds and make independent investment decisions under the Sequoia brand.
— Alex Leary and Heather Somerville contributed to this article.
Write John D. McKinnon at john.mckinnon@wsj.com
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