President Biden’s plan to limit certain investments in China may prove a boon for U.S. intelligence agencies.

Companies planning to invest in sensitive Chinese technology such as semiconductors, quantum computing, and artificial intelligence would have to share details with the government, according to an executive order Biden signed last week. In the process, it would provide economic intelligence on China that’s eagerly sought by U.S. spy agencies.

“It was a lot of carrots. Now the stick is coming out,” Deborah Curtis, a partner at Arnold & Porter and the Central Intelligence Agency’s former deputy general counsel for litigation and investigations, said in an interview.

Any new information that investors eventually are required to produce will help the U.S. intelligence community retool its traditional targets for spycraft, including a focus on new technologies that could represent a threat to national security, Curtis said.

“Those walls have to come down because the new weapons of mass destruction are high technology,” she said in an interview. “It’s no longer going to be, ‘Hi, it’s nice to meet you, we’d love for you to share this information with us.’ It’s going to be, ‘There’s a civil penalty if you don’t.’ ”

The Treasury Department declined to comment, and the Office of the Director of National Intelligence didn’t respond to requests for comment on the intelligence implications of the executive order.

China is evaluating the executive order’s impact and will take “necessary” actions after its review, Ministry of Commerce spokeswoman Shu Jueting said during a news briefing in Beijing on Thursday.

The order on “outbound investment,” issued last week, was narrower than expected in its scope and vague on many of its details. The Treasury Department issued a rough road map, opening the way for rules that probably won’t be final until next year.

The proposed rule assures affected companies that the information they provide will be shared “only to the extent necessary for national security purposes, and subject to appropriate confidentiality and classification requirements.”

Holden Triplett, a former FBI official and co-founder of Trenchcoat Advisors, said that “the competition between the U.S. and China is squarely in the economic sphere.”

“That means private companies – whether they like it or not – are intimately involved in that competition,” he said in an email. “The new EO is another layer of protection for the U.S., by ensuring that U.S. companies are not unwittingly undermining U.S. national security.”

Regardless of how narrow the outbound investment rules end up, it will give intelligence agencies more information on “where U.S. companies were investing, and even more importantly which Chinese companies were seeking U.S. investment, (which) would be extremely valuable,” said Triplett, who once led the FBI’s offices in China.

Venture capital and private equity firms that invest directly in early-stage Chinese companies have sought to make the case to the government that those investments are walled off from their U.S. operations and have sought to narrow the scope of the executive order.

“It is the companies’ worst nightmare,” Curtis said. “Not only are they going to be made to disclose this cutting-edge amazing stuff they’re doing but who they’re doing it with, what they’re doing it for, who’s involved.”

It’s opening a new chapter in the complex, and sometimes prickly, relationship between U.S. intelligence agencies and the private sector.

“They sometimes see things before we do, and we need to learn from them,” Director of National Intelligence Avril Haines said in April in remarks to the Carnegie Endowment for International Peace. “They don’t necessarily put it into the broader context, which is something we can do, and help them to discern from the information what’s happening in certain spaces that may be useful.”

 

Bloomberg’s Yujing Liu contributed to this report.

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