By Sergey Manukov
Markets have generally reacted very poorly to President Biden's ban and restrictions on US investment in the Chinese technology sector, but US investors are more worried about the prospects of the Chinese retaliation.
We are talking about the restrictions on investment in China in sensitive industries and dual-use technologies, including computer chips, announced by Joe Biden this week under the pretext of strengthening national security and holding back the modernization of the Chinese Armed Forces. The initial reaction of American investors was weak, because they were waiting for tougher measures. In addition, the bans and restrictions do not seem to affect the civilian sectors of the Chinese economy. However, after a few days, everyone remembered that Beijing usually responds in mirror fashion in such cases. That is, one should obviously wait for the introduction of the same bans and restrictions on Chinese investment in the American economy.
“Much will depend on China's reaction,” Rick Mekler, a partner at Cherry Lane Investments, quoted Reuters as saying. “A serious technological war (between the US and China), of course, is not needed by anyone. The administration announced the bans quietly, as if they didn't want to irritate China too much."
The Chinese Ministry of Commerce, after President Biden's statement, expressed "grave concern" and repeated the usual words that China retains the right to retaliate. However, a number of experts believe that Beijing's capabilities in this matter are severely limited and that the Chinese will try not to escalate a confrontation with Washington.
How right the optimists are, only time will tell. In May, after Washington announced restrictions on exports to China of a number of U.S. chip-making components and equipment, Beijing imposed similar sanctions on U.S. chip maker Micron Technology. The American side then accused Beijing of revenge, after which relations between the two leading economies of the planet became even more aggravated.
“It is naive to think that China will swallow this ban and not react to it,” said Tom Plum, head of Plumb Funds.
Beijing, according to Plum, may limit exports to the US, for example, of rare earth metals used in consumer electronics, electric vehicles, etc., as well as impose sanctions on US technology companies.
Hawks in Washington are outraged that American investors are investing heavily in Chinese IT companies and transferring valuable technologies to them that could enhance China's military power. Beijing, for its part, as the technological confrontation with Washington intensifies, pays more and more attention and funds to ensuring the Celestial Empire's self-sufficiency in high-tech products. The Chinese authorities, of course, can also limit investment in US companies. Naturally, with each such step by the White House, the determination of the PRC leadership to reduce its technological dependence on American companies will grow.
Michael Ashley Shulman, chief investment officer at Running Point Capital Advisors, says a number of clients have already approached him to reduce or even remove Chinese stocks and bonds and ETFs from their investment portfolios.
This article originally appeared in Russian at expert.ru