On Wednesday, President Joe Biden enacted an executive order, placing stringent restrictions on specific U.S. investments in China's sensitive technology sectors.

This move primarily targets sectors such as semiconductors and microelectronics, quantum tech, and select AI systems, Reuters reported.

Biden communicated to Congress that this decision emerges from a national emergency, addressing the rapid advancements by nations like China in pivotal tech areas that have significant military, intelligence, and cyber implications.

U.S. Bans Specific Investment To China On National Security Issues

While this could escalate tensions between the two economic giants, U.S. officials clarified that the objective is to mitigate "the most acute" national security threats without severing the intertwined economies of both nations.

A government official contacted by CNBC emphasized the U.S.'s commitment to open investment, stating that "this executive order protects our national security interests in a narrowly targeted manner."

The directive's primary goal is to prevent U.S. capital and expertise from aiding China's military modernization, potentially jeopardizing U.S. security. The focus is on private equity, venture capital, and other investment forms.

Most investments under this order will necessitate government notification, with some being outright banned. The Treasury Department hinted at possible exemptions, especially for public trading and intracompany transfers.

China's Embassy in Washington refrained from immediate comments.

Elaine Dezenski, from the Foundation for Defense of Democracies, noted that this move could further deter U.S. and multinational companies from investing in China, given Beijing's restrictive laws.

Existing investments remain unaffected, with the new regulations only influencing future endeavors. The Biden administration engaged with global allies while formulating these restrictions, and plans to continue this collaborative approach. Implementation is slated for next year, post extensive public feedback.

Emily Benson from the Center for Strategic and International Studies anticipates that AI investments linked to military applications will face prohibitions. She emphasized the administration's challenge in defining AI's military applications.

Details regarding AI and quantum computing regulations are still under development, with potential exemptions for academic and research institutions.