Finance

Credit data for July released Friday showed a slump in demand from businesses and households to borrow money for the future.
On Tuesday, China is set to release July economic data that’s expected to show no change from June in the pace of growth for industrial production and fixed asset investment, according to a Reuters poll.  
Developer Country Garden announced over the weekend it was suspending trading in at least 10 of its mainland-China traded yuan bonds.

A woman walks at the Bund in front of the financial district of Pudong in Shanghai, China.
Aly Song | Reuters

BEIJING – China’s economy is running into more challenges.
Credit data for July released Friday showed a slump in demand from businesses and households to borrow money for the future. Real estate problems persist with once-healthy developer Country Garden now on the brink of default. Consumer sentiment is weak.

“The weak July credit data suggest the downward spiral of the property sector continues, and worsening geopolitical tensions add to the uncertainty,” Lu Ting, chief China economist at Nomura, and a team said in a report Friday.
“In Japan during the 1990s, corporates might have paid down their debt to improve their chances of survival, but in today’s China, corporates and households are cutting their borrowing due to a lack of confidence (and trust),” the report said.

All the factors just cannot mask how weak credit demand is and how low risk appetite is.

Xiangrong Yu
chief China economist, Citi

New local currency bank loans plunged by 89% in July from June to 345.9 billion yuan ($47.64 billion), less than half the 800 billion yuan analysts had forecast in a Reuters poll.
The July new yuan loan number was the lowest since late 2009, according to Reuters.
Those figures “should mark a low” since policy moves in June could have moved up some demand, Xiangrong Yu, chief China economist at Citi, and a team said in a note.

“Yet all the factors just cannot mask how weak credit demand is and how low risk appetite is,” the analysts said, noting expectations for rate cuts by the end of September. Without such cuts, they expect a greater risk that China misses its growth target of around 5% this year.
On Tuesday, China is set to release July economic data that’s expected to show no change from June in the pace of growth for industrial production and fixed asset investment, according to a Reuters poll.  
Retail sales are expected to rise 4.7% year-on-year pace in July, slightly faster than in June, the poll showed.

Real estate drag

China’s massive real estate sector, where the majority of household wealth is parked, has reemerged as an area of concern that it could drag down the broader economy.
Developer Country Garden announced over the weekend it was suspending trading in at least 10 of its mainland-China traded yuan bonds.
Last week, the company missed coupon payments on two U.S. dollar-denominated bonds, according to Reuters.
Country Garden’s U.S. dollar bonds account for just under half of outstanding high-yield U.S. dollar-denominated bonds, according to Goldman Sachs analysis.
China U.S. dollar bonds that are of investment grade account for 43% of the total, the analysis showed.
“Given that the majority of [high-yield] developers have either defaulted or conducted bond exchanges, we believe rising stresses amongst the remaining [high yield] developers are unlikely to have broader impact on the offshore bond market,” the Goldman analysts said in a report Friday.
“We believe of greater concern is whether rising stresses will spillover to [investment grade] developers, most of whom are state owned enterprises [SOEs].”

The more the government tries to help the real estate industry, the longer it takes for the industry to find a reasonable bottom.

Brandes Investment Partners

State-owned companies have generally found it easier to obtain loans in China, where state-owned banks dominate. State-owned developers have also fared better in terms of recent sales than non-state-owned developers, data show.
However, China’s entire real estate sector still needs to contract by about 10 percentage points to reach a similar level of GDP contribution as Japan or South Korea, said Louis Lau, director of investments and emerging markets portfolio manager at Brandes Investment Partners.
He pointed out that while real estate has contributed to about 30% of GDP in China, that share is in the lower 20 percentage points in South Korea and Japan.

Read more about China from CNBC Pro

In 2020, Beijing began an earnest crackdown on developers’ high reliance on debt for growth. Authorities have eased their stance in recent months, with a notable shift in late July, but stopped short of large-scale stimulus.
“The more the government tries to help the real estate industry, the longer it takes for the industry to find a reasonable bottom,” Lau said.
He is underweight China, with selective investments in some consumer names and industries he expects will outperform. More

Advancements in investment products and trading platforms haven’t altered long-standing investing fundamentals, according to neurologist and best-selling financial author William Bernstein.
Bernstein, who released the second edition of his 21-year-old classic investment guidebook “The Four Pillars of Investing” this summer, joined CNBC’s Bob Pisani on “ETF Edge” this week.

The first pillar of investing according to Bernstein is theory, in which he stressed that risk and return are “joined at the hip.”
“If you want a perfectly safe portfolio, you’re not going to have high returns,” Bernstein said. “If you want the high returns that come with equities, you’re going to have to sustain bone-crushing losses.”
His second pillar is history. It plays off the idea markets overshoot on the upside and the downside, and only bottom in retrospect.
“Markets don’t get either very expensive or very cheap without a good reason,” Bernstein said. “You have to just be able to keep your discipline and understand that the expected market return has to do with the perceived risk of the market, and the perceived risk of the environment you’re in.”
The third pillar is psychology. Bernstein believes investors tend to be overconfident about their ability to pick stocks.

“The metaphor I like to use [for investing] is that you’re playing tennis with an invisible opponent, and what you don’t understand is the person on the other side of the net is Serena Williams,” Bernstein said.
Bernstein also emphasizes that investors tend to be overconfident on their own risk tolerance.
“One of the things I learned both in 2008 and more recently during the March 2020 Covid swoon was that how you behave in the worst 2% of the markets probably describes 90% of your overall investment performance,” he said.
Bernstein’s final investing pillar is business. It’s the notion the primary business of most fund companies is collecting assets rather than managing money.
This idea is one of the reasons Bernstein feels positive about the exchange-traded funds business and its role in reducing fees.
“One can purchase a lot of investment products now for next to nothing in terms of expenses — a couple of basis points,” Bernstein said.

Disclaimer More

An Alibaba Group sign is seen at the World Artificial Intelligence Conference in Shanghai, July 6, 2023.
Aly Song | Reuters

Check out the companies making headlines in midday trading.
News Corp — The media company’s shares jumped nearly 7% after reporting an earnings beat in the fiscal fourth quarter. News Corp posted adjusted earnings of 14 cents per share, while analysts polled by Refinitiv had estimated 8 cents per share. Meanwhile, the company’s revenue of $2.43 billion missed analysts’ forecast of $2.49 billion.

UBS — Shares rose 5% on news that UBS ended a roughly $10 billion loss protection agreement and a public liquidity backstop with Credit Suisse. The company also confirmed that Credit Suisse fully repaid a 50 billion Swiss franc emergency liquidity loan to the Swiss National Bank.
Chip stocks — Semiconductor shares dropped more than 2% Friday, putting the sector on pace for a weekly decline of 4.5%. The VanEck Semiconductor ETF (SMH) fell 2.3%. NXP Semiconductors, Applied Materials, Nvidia and On Semiconductor each tumbled more than 3% Friday. Lam Research declined 4.5%.
Maxeon Solar Technologies — Shares plummeted 31.9% after the company reported a revenue miss in the second quarter amid weakening demand. The company posted $348.4 million in revenue last quarter, short of the $374.3 million anticipated by analysts polled by FactSet. Maxeon forecasts revenue to range between $280 million and $320 million in the third quarter, while analysts called for $394.8 million.
China-based companies — The U.S.-traded shares of Chinese companies tumbled after Chinese property giant Country Garden issued a profit warning amid a decline in real estate sales, adding to negative sentiment surrounding China’s economy. JD.com and Alibaba lost 5.2% and 3.5%, respectively. Nio declined 2.6%. 
Wynn Resorts — The casino operator’s shares retreated 3.5%. The decline comes after shares rose nearly 3% in the previous session on the back of the company’s earnings announcement. Casino and hospitality peer Caesars Entertainment lost nearly 3% in sympathy.

Krispy Kreme — The doughnut maker popped 4.1% after JPMorgan reiterated its overweight rating, noting that shares are cheap.
Coinbase — The crypto exchange’s stock dipped 2.8% after Mizuho reiterated its underperform rating on the stock. The Wall Street firm said retail crypto traders are flocking to Robinhood to trade cryptocurrencies and away from Coinbase.
Tapestry — Shares gained 1.3% Friday, partly recouping losses of 16% from Thursday’s trading session. Tapestry announced Thursday morning it would acquire Capri Holdings in an $8.5 billion deal. 
Kura Oncology — The biotech company’s shares rose 7.4% after Bank of America initiated coverage of Kura with a buy rating in a Friday note. 
DigitalOcean Holdings — Shares added 2.2% following an upgrade from Morgan Stanley to equal weight from underweight. The firm said its underweight thesis on DigitalOcean has largely played out.
— CNBC’s Alex Harring and Yun Li contributed reporting. More

Optimism about the potential of AI to drive future profits has powered the tech-heavy Nasdaq Composite to gains of more than 31% year to date.
Nvidia stock closed Thursday’s trade up 190% so far this year, while Facebook parent Meta Platforms has gained more than 154% and Tesla 99%.
In a recent research note, Morningstar drew parallels between the concentration of huge valuations and the dotcom bubble of 1999, though Coop said the differentiating feature of the current rally is that the companies at its center are “established giants with major competitive advantages.”

An AI (Artificial Intelligence) sign is seen at the World Artificial Intelligence Conference (WAIC) in Shanghai, China July 6, 2023. 
Aly Song | Reuters

Market participants are “overconfident” about their ability to predict the long-term effects of artificial intelligence, according to Mike Coop, chief investment officer at Morningstar Investment Management.
Despite a pullback so far this month, optimism about the potential of AI to drive future profits has powered the tech-heavy Nasdaq composite to add more than 31% year-to-date, while the S&P 500 is up by more than 16%.

Some analysts have suggested that a bubble effect may be forming, given the concentration of market gains in a small number of big tech shares. Nvidia stock closed Thursday’s trade up 190% so far this year, while Facebook parent Meta Platforms has risen more than 154% and Tesla 99%.
“If you look back at what’s happened over the last year, you can see how we’ve got to that stage. We had the release of ChatGPT in November, we’ve had announcements about heavy investment in AI from the companies, we’ve had Nvidia with a knockout result in May,” Coop told CNBC’s “Squawk Box Europe” on Friday.
“And we’ve had a dawning awareness of how things have sped up in terms of generative AI. That has captured the imagination of the public and we’ve seen this incredible surge.”

In a recent research note, Morningstar drew parallels between the concentration of huge valuations and the dotcom bubble of 1999, though Coop said the differentiating feature of the current rally is that the companies at its center are “established giants with major competitive advantages.”
“All of our company research suggests that the companies that have done well this year have a form of a moat, and are profitable and have sustainable competitive advantages, compared with what was happening in 1999 where you had lots of speculative companies, so there is some degree of firmer foundations,” Coop said.

“Having said that, the prices have run so hard that it looks to us that really people are overconfident about their ability to forecast how AI will impact things.”
Drawing parallels to major technological upheavals that have re-aligned civilization — such as electricity, steam and internal combustion engines, computing and the internet — Coop argued that the long-run effects are not predictable.
“They can take time and the winners can emerge from things that don’t exist. Google is a good example of that. So we think people have got carried away with that, and what it has meant is that the market in the U.S. is very clustered around a similar theme,” he said.
“Be mindful of what you can really predict when you’re paying a very high price, and you’re factoring in a best case scenario for a stock, and be cognizant of the fact that as the pace of technological change accelerates, that also means that you should be less confident about predicting the future and betting heavily on it and paying a very high price for things.”
In what he dubbed a “dangerous point for investors,” Coop stressed the importance of diversifying portfolios and remaining “valuation aware.”
He advised investors to look at stocks that are able to insulate portfolios against recession risks and are “pricing in a bad case scenario” to the point of offering good value, along with bonds, which are considerably more attractive than they were 18 months ago.
“Be cognizant of just how high a price is being paid for the promise of what AI may or may not deliver for individual companies,” Coop concluded.
Correction: This story was updated to reflect the year-to-date change of the Nasdaq Composite stood at 31% at the time of writing. More

A Six Flags Great Adventure “Clean Team” crew member disinfects the Wonder Woman: Lasso of Truth ride every 30 minutes.
Kenneth Kiesnoski/CNBC

Check out the companies making headlines in premarket trading.
UBS — Stock in the Swiss bank ticked up 4.6% before the opening bell following news that UBS ended a $10 billion loss protection agreement and a public liquidity backstop with Credit Suisse. UBS also confirmed that Credit Suisse fully repaid a 50 billion Swiss franc emergency liquidity loan to the Swiss National Bank.

Six Flags — The amusement park stock slipped 2.5% after missing on second-quarter estimates. The company reported adjusted earnings of 25 cents per share on $444 million in revenue, while analysts polled by Refinitiv forecast 78 cents and $459 million.
Maxeon Solar Technologies – The clean energy stock tumbled 26% in premarket trading after Maxeon said demand was weakening. Second quarter revenue of $348.4 million missed a guidance range that started at $360 million. Maxeon said it expected revenue to total between $280 million and $320 million in the third quarter. High interest rates was one reason Maxeon cited for the demand issues.
Savers Value Village — The thrift store retailer climbed nearly 6% on the heels of an earnings beat. The company notched adjusted earnings per share of 22 cents on $379 million in revenue, while FactSet had forecast 17 cents and $375 million.
Flower Foods — The baked goods company added 2.4% after beating on the top and bottom line in the second quarter. Flower Foods earned an adjusted 33 cents per share on $1.23 billion in revenue, while Refinitiv put the consensus at 28 cents and $1.2 billion.
Archer Aviation — Shares soared nearly 23% after Archer settled a lawsuit with Boeing over an autonomous flying dispute. Archer also recently completed a $215 million equity investment round, including contributions from United Airlines and Cathie Wood’s Ark Investment Management.

IonQ — The computing hardware firm added 8.2% after posting a wider-than-expected quarterly loss and a revenue miss. IonQ did, however, raise its booking guidance to a range of $49 million to $56 million.
— CNBC’s Jesse Pound contributed reporting More

Huawei on Friday reported 2.2% year-on-year growth in its consumer business revenue for the first half of the year.
That was slower than the company’s overall revenue increase of 3.1% to 310.9 billion yuan during that time.
The modest growth comes alongside China’s slower-than-expected economic rebound this year, and U.S. sanctions on the company that began in 2019.

Huawei’s production campus is pictured here on April 25, 2019, in Dongguan, near Shenzhen, China.
Kevin Frayer | Getty Images News | Getty Images

BEIJING — Chinese tech giant Huawei on Friday reported 2.2% year-on-year growth in its consumer business revenue for the first half of the year.
The modest growth comes alongside China’s slower-than-expected economic rebound this year, and U.S. sanctions on the company that began in 2019. Those business restrictions have since weighed on results.

At 103.5 billion yuan ($14.27 billion) in first six months of 2023, Huawei’s consumer revenue was less than half what the segment had generated during the same period in 2019 and 2020.
The 2.2% pace of growth was also slower than the company’s overall revenue increase of 3.1% to 310.9 billion yuan in the first half of the year.
Huawei’s ICT infrastructure business, which includes carrier and enterprise services revenue, contributed the most to overall revenue with 167.2 billion yuan for the first half of the year.

Cloud services brought in revenue of 24.1 billion yuan, while intelligent automotive solutions — whose products include tech for new energy vehicles — saw revenue of 1 billion yuan in the first six months of 2023.
Huawei has its own electric car brand, Aito, which claims to have produced 100,000 vehicles in 15 months through a partnership. Those sales are generally counted as part of the consumer business.

The consumer segment is the only unit with year-on-year comparable figures since Huawei didn’t start reporting revenue breakdown by cloud and other industries until late last year.
Huawei reported a significant increase in its net profit margin of 15% in the first half of the year, up from 5% in the year-ago period. The company attributed the improvement to better management systems and gains from the sale of certain businesses, which it did not specify.
The company also pressed ahead in its efforts to monetize artificial intelligence by launching in July an AI model for improving safety and efficiency in mining operations.
Second-quarter overall revenue grew by 4.8% year-on-year to 178.8 billion yuan — the fastest pace since only the fourth quarter of 2022, according to CNBC calculations.

Looking for smartphone growth

Overall revenue growth in the first half of 2023 comes off a low base. Huawei previously said its revenue barely grew in 2022 after reporting in 2021 its first annual revenue decline on record.
In 2019, the U.S. under President Donald Trump put Huawei on a blacklist that restricts the ability of American companies to sell to the Chinese telecommunications giant. That includes licensed access to the latest versions of Google’s Android operating system.
Huawei has instead released its own system, called Harmony OS. Earlier this month, the company announced the latest version of that operating system — and claims it was downloaded over one million times in three days.
This year, Huawei expects the launch of its flagship consumer products to return to a “normal” schedule, amid a slump in the smartphone market. The company did not share the extent to which there had been delays. In 2019, CNBC reported Huawei pushed back the release of a foldable phone.

Read more about China from CNBC Pro

In March, Huawei released its P60 smartphone, Mate X3 foldable and Watch Ultimate wearable, whose sales contributed to first-half growth in consumer business revenue, the company said.
“The industry and global markets will remain rife with uncertainty for the rest of 2023,” a Huawei spokesperson said in a statement.
“Nevertheless, we are continuously building out our mechanisms for global business continuity management and our agile operations management system,” the spokesperson said.
“We are confident that we can meet our annual business targets and continue creating value for customers and society at large.”
— CNBC’s Arjun Kharpal contributed to this report. More

UBS on Friday said that it has ended a 9 billion Swiss franc ($10.27 billion) loss protection agreement and a 100 billion Swiss franc publicly liquidity backstop that were put in place by the Swiss government when it took over rival Credit Suisse in March.
Credit Suisse also fully repaid the emergency liquidity assistance loan of 50 billion Swiss francs to the Swiss National Bank in March, as Credit Suisse teetered after a collapse in shareholder and investor confidence, UBS confirmed.
“These measures, which were created under emergency law to preserve financial stability, will thus cease to exist, and the Confederation and taxpayers will no longer bear any risks arising from these guarantees,” the Swiss government said in a statement Friday.

The logos of Swiss banks Credit Suisse and UBS on March 16, 2023 in Zurich, Switzerland.
Arnd Wiegmann | Getty Images News | Getty Images

UBS on Friday said that it has ended a 9 billion Swiss franc ($10.27 billion) loss protection agreement and a 100 billion Swiss franc public liquidity backstop that were put in place by the Swiss government when it took over rival Credit Suisse in March.
UBS said the decision followed a “comprehensive assessment” of Credit Suisse’s non-core assets that were covered by the liquidity support measures.

“These measures, together with the intervention of UBS, contributed to the stabilization of Credit Suisse and financial stability in Switzerland and globally,” UBS said in a statement.
Credit Suisse has also fully repaid an emergency liquidity assistance plus (ELA+) loan of 50 billion Swiss francs obtained from the Swiss National Bank in March, as the lender teetered on the brink after a collapse in shareholder and investor confidence, UBS confirmed.
“These measures, which were created under emergency law to preserve financial stability, will thus cease to exist, and the Confederation and taxpayers will no longer bear any risks arising from these guarantees,” the Swiss government said in a statement Friday.
“Furthermore, the Confederation earned receipts of around CHF 200 million on the guarantees.”
The Swiss Federal Council plans to submit a bill in parliament to introduce a public liquidity backstop (PLB) under ordinary law, while work continues on a “comprehensive review of the too-big-to-fail regulatory framework.”

The 9 billion Swiss franc LPA was intended to insure UBS on losses above 5 billion Swiss francs following the takeover, which was brokered over a frenetic weekend in March amid talks with the Swiss government, the SNB and the Swiss Financial Market Supervisory Authority.
The emergency rescue deal saw UBS acquire Credit Suisse for a discount price of 3 billion Swiss francs, creating a Swiss banking and wealth management behemoth with a $1.6 trillion balance sheet.
“After reviewing all assets covered by the LPA since the closing in June and taking the appropriate fair value adjustments, UBS has concluded that the LPA is no longer required,” UBS said.
“Therefore, UBS has given notice of voluntary termination effective 11 August 2023. UBS pays a total of CHF 40 million to compensate the Swiss Confederation for the establishment of the LPA.”
The 100 billion Swiss franc public liability backstop was established on March 19 by the Swiss government and allowed the SNB to provide liquidity support to Credit Suisse if needed, underwritten by a federal default guarantee.
UBS confirmed on Friday that all loans drawn under the PLB were fully repaid by Credit Suisse by the end of May, and that the group had terminated the PLB agreement after a review of its funding situation.
“Through 31 July 2023, Credit Suisse expensed a commitment fee and a risk premium totaling CHF 214 million, including approximately CHF 61 million to the SNB and CHF 153 million to the Swiss Confederation,” UBS added. More

The Biden administration’s long-awaited executive order on U.S. investments in Chinese companies leaves open plenty of questions on how it will be implemented.
Its 45-day public comment period gives U.S. investors significant potential to influence any final regulation, analysts said.
But the industry and political developments mark a shift in the overall risk environment.

The U.S. and Chinese flags hang outside the Goldman Sachs headquarters in New York on Dec. 16, 2008.
Chris Hondros | Getty Images News | Getty Images

BEIJING — The Biden administration’s long-awaited executive order on U.S. investments in Chinese companies leaves open plenty of questions on how it will be implemented.
Its 45-day public comment period gives U.S. investors significant potential to influence any final regulation, analysts said.

“The executive order obviously gives an outline of what the program’s scope is going to be like,” said Brian P. Curran, a partner, global regulatory at law firm Hogan Lovells in Washington, D.C.
“It’s not even a proposed rule. It’s not a final rule.”
U.S. President Joe Biden on Wednesday signed an executive order aimed at restricting U.S. investments into Chinese semiconductor, quantum computing and artificial intelligence companies over national security concerns.
Treasury Secretary Janet Yellen is mostly responsible for determining the details. Her department has published a fact sheet and a lengthy “Advance Notice of Proposed Rulemaking” with specific questions it would like more information on.

Businesses can share information confidentially as needed, according to the advanced notice, which is set to be formally published on Monday. The notice said it is only a means for sharing the Treasury’s initial considerations, and will be followed by draft regulations.

“The final scope of the restriction, to be defined by the Treasury Department after public consultations, including with U.S. investors in China, will be critical for the enforcement of the order,” said Winston Ma, an adjunct professor at NYU Law and a former managing director of CIC.

So what’s banned?

This week’s announcements don’t explicitly prohibit U.S. investments into Chinese businesses, but the documents indicate what policymakers are focused on.
The U.S. transactions potentially covered include:

Acquisition of equity interests such as via mergers and acquisitions, private equity and venture capital;
Greenfield investment;
Joint ventures;
Certain debt financing transactions.

The forthcoming regulations are not set to take effect retroactively, the Treasury said. But the Treasury said it may request information about transactions completed or agreed to since the issuance of the executive order.
“We’ve been advising clients leading up to the issuance of the executive order, it does make sense to look at your exposure to the kinds of transactions that have the potential to be covered by the regime,” Curran said.
Any plans to invest in the sectors named in the public materials should come under additional consideration of the risks and how to manage them, he said.

Here are the sectors of concern:
Semiconductors — Treasury is considering a ban on tech that enables production or improvement of advanced integrated circuits; design, fabrication and packaging capabilities for advanced integrated circuits; and installation, or sale to third-party customers, of certain supercomputers.
Treasury is also considering a notification requirement for transactions involving the design, fabrication and packaging of other integrated circuits.
The U.S. government is concerned about tech that will “underpin military innovations,” the advance notice said.
Quantum computing — Treasury is considering a ban on transactions involving the production of quantum computers, sensors and systems.
However, the Treasury said it is considering not to require investors to notify it of transactions in this sector.
The U.S. government is concerned about quantum information technologies that could “compromise encryption and other cybersecurity controls and jeopardize military communications,” the notice said.
Artificial intelligence — Treasury is considering a ban on U.S. investments into the development of software using AI systems designed for exclusive military, government intelligence or mass-surveillance use.
The Treasury said it may also require U.S. persons to notify it if undertaking transactions involved with AI systems for cybersecurity applications, digital forensics tools, control of robotic systems and facial recognition, among others.
However, the Treasury said its intent is not to touch entities that develop AI systems only for consumer applications and other uses that don’t have national security consequences.

What’s allowed

The Treasury said it expects to exclude certain investments into publicly-traded securities or exchange-traded funds.
The following transactions are not set to be included by forthcoming regulation:

University-to-university research collaborations
Contracts to buy raw materials
Intellectual property licensing
Bank lending and payment processing
Underwriting
Debt rating
Prime brokerage
Global custody
Stock research

What’s next

The Treasury is asking for written comments on its advanced notice by Sept. 28.
The notice includes wide-ranging requests for data into investment trends. It also asked questions about effective threshold requirements and definitions, and details about the resulting burdens for U.S. investors: “If such limitations existed or were required, how might investment firms change how they raise capital from U.S. investors, if at all?”
Among the many other questions, the Treasury is asking for areas within the three overarching categories where U.S. investments into Chinese entities would “provide a strategic benefit to the United States, such that continuing such investment would benefit, and not impair, U.S. national security.”
“There is a lot of opportunity for the public’s comment for what should be covered what should not be covered,” said Anne Salladin, a partner, global regulatory, at Hogan Lovells. “It strikes me as an extraordinarily good opportunity for clients to weigh in on that front.”
“This has been under consideration by the administration for a couple of years now,” she said. “One of the things that’s important is to take [the regulatory process] at a slow speed to understand what the ramifications are for U.S. businesses.”

The kind of law that Biden’s [planning], it’s small but it’s important because once the state starts to meddle with these things it creates more dramatic possibilities.

Jonathan Levy
Professor, University of Chicago

Given the lengthy process, forthcoming regulations aren’t expected to take effect until next year.
However, the niche industry of China-based venture capitalists — which raise funds from U.S. investors to invest in Chinese start-ups, many tech-focused — is already struggling.
Fewer than 300 unique U.S.-based investors have participated in China-based VC deals since 2016 each year, with just 64 participants so far this year, according to Pitchbook.
China VC deal activity in the second quarter continued a recent decline, to the lowest since the first quarter of 2017, according to Pitchbook.
The data showed China VC deal activity with U.S.-only investor participation in artificial intelligence has fallen since the first quarter of 2022. Pitchbook recorded barely any such deals in quantum computing since 2021, while semiconductors saw moderate activity through the first half of this year.

Read more about China from CNBC Pro

The industry and political developments also mark a shift in the overall risk environment.
“The kind of law that Biden’s [planning], it’s small but it’s important because once the state starts to meddle with these things it creates more dramatic possibilities,” said Jonathan Levy, a University of Chicago economic history professor and author of “Ages of American Capitalism: A History of the United States.”
While he said he doesn’t have any sources within the Biden administration, Levy said the latest developments signal to him that the U.S. government doesn’t want the new economic relationship with China “to consist of U.S. investment funds investing in Chinese high tech because we think high tech is kind of a strategic interest.”
“I also think more fundamentally, I don’t know what kind of relationship they have in mind, [but] there’s going to be a new order. We want to shape to some degree what that [order] looks like.”
— CNBC’s Amanda Macias contributed to this report. More