Weekend - China warns of countermeasures as US Treasury widens tech investment curbs to biotech

The proposal adds to already tense US-China relations and keeps headline risk elevated for Chinese technology and biotech stocks, including US-listed ADRs and the Hang Seng Tech index. Biotech is the sector most directly exposed, since it is the newly targeted industry and has relied more heavily on cross-border funding than areas already under restriction. Beijing has not named the countermeasures it might take, and that vagueness tends to keep investors cautious until the response becomes clear. A long public comment period leaves time for negotiation, but it also stretches the uncertainty out for months, which could weigh on risk appetite toward China-exposed assets and the offshore yuan if rhetoric escalates.-- Washington wants to stop US capital from funding China’s next generation of strategic technology, and Beijing is signalling that it will not take the move quietly.Summary:On Thursday the US Treasury proposed a rule expanding the Outbound Investment Security Program, tightening limits on US investment in hypersonics, quantum, high-performance computing, supercomputing and AI in China, Russia and North KoreaThe rule also adds biotechnology to the targeted sectors, an addition sought by Treasury Secretary Scott BessentChina’s commerce ministry said on Saturday the move discriminatorily widens China-related restrictions, overstretches national security and would damage bilateral economic tiesBeijing said it will monitor developments and reserves the right to take unspecified countermeasuresThe proposal faces a public comment period before a final rule is issuedSeparately, the State Department this week sanctioned five Chinese companies linked to former Google engineer Linwei Ding, convicted this year of stealing AI trade secrets, drawing further objections from Beijing China has urged the United States to reconsider a proposed rule that would further restrict American investment in its technology sector, warning that the measure would harm trade relations and that Beijing reserves the right to retaliate.China’s commerce ministry voiced firm opposition on Saturday in a statement carried by the state-run Global Times, according to a report by The Hill. A ministry spokesperson said the proposal widens China-related investment restrictions in a discriminatory way and described it as a classic example of stretching the concept of national security too far. The ministry said it would watch subsequent developments closely, warned the rule would damage economic ties between the two countries, and said China retains the right to take corresponding measures, without specifying what those might be.The US Treasury Department unveiled the proposal on Thursday. It would expand existing restrictions under the Outbound Investment Security Program covering hypersonic systems, quantum information technologies, high-performance computing, supercomputing and artificial intelligence. The program aims to stop a small group of countries designated as foreign adversaries, namely China, Russia and North Korea, from using US capital to advance their own technological capabilities.The proposed rule would also bring the biotechnology industry within the program’s scope, an addition that Treasury Secretary Scott Bessent had pushed for, according to a department press release. Bessent said the changes would strengthen the program and prevent adversaries from using American investment to build critical technologies that threaten US national security.The measure must go through a public comment period before Treasury issues a final version, leaving room for revisions and for further diplomatic exchanges in the meantime.The proposal lands days after the State Department imposed sanctions on five Chinese companies connected to Linwei Ding, a former Google engineer convicted earlier this year of stealing trade secrets related to artificial intelligence. Beijing also objected to those penalties, saying they seriously harm the legitimate rights and interests of Chinese businesses. Taken together, the two moves underline Washington’s widening focus on technology and capital flows as a front in its rivalry with China. Beijing’s eventual response is now the key variable for investors and policymakers alike. This article was written by Eamonn Sheridan at investinglive.com.