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Hi, and welcome to Semafor Tech, a twice-weekly newsletter from Reed Albergotti and me. The White House has been working for a long time on an executive order that would prevent U.S. investors from pouring money into Chinese tech companies in certain sectors it deems crucial for national security, like artificial intelligence.

It’s easy for your eyes to glaze over when you read about these kinds of measures. But what Joe Biden’s administration is trying to do is fairly radical: Tell American venture capitalists that certain startups are off-limits. Today, my colleague at Principals, Morgan Chalfant, and I share fresh details about that effort, which Congress might end up accomplishing first. Plus, Reed highlights a new food waste startup and a controversy over news articles written by AI.

Buy/Sell

➚ BUY: Didi. The Chinese ride-hailing giant says it’s received government approval to resume signing up new users, 18 months after Beijing first began cracking down on the company as part of a broader effort to rein in the country’s tech sector.

➘ SELL: Alibaba. Activist investor and meme-stock phenom Ryan Cohen has taken a large stake in the Chinese e-commerce firm, according to the Wall Street Journal. He wants faster and bigger share buybacks, but the news has yet to impact Alibaba’s stock — perhaps because the market senses that Beijing isn’t in the mood for the kind of antics Cohen specializes in.

Semafor Stat

The estimated percentage of total U.S. venture capital funds raised by Black founders in 2022, according to Crunchbase. That’s a slight decrease from 2021, when Black entrepreneurs raised an estimated 1.3% of allocated venture funding.

Morgan Chalfant and Louise Matsakis

Congress is zeroing in on US investments in China

THE SCOOP

Congress is getting ready to propose its own plans to restrict U.S. firms from investing in sensitive Chinese tech companies after a similar effort by the White House has faced delays.

House lawmakers, including the chair of a newly established select committee on China, see U.S. capital flows to the People’s Republic as an area ripe for scrutiny. And a pair of bipartisan senators — John Cornyn, R-Texas and Bob Casey, D-Pa. — are preparing to introduce a new version of a bill they previously sponsored that would require government approval for certain American investments in foreign countries, according to a Senate aide.

The senators may announce their bill before Joe Biden’s administration issues its related executive order, the aide told Semafor, which is likely to happen in the coming months.

The White House has been working on a measure to limit U.S. venture capital firms and other organizations from pouring money into Chinese companies in high-tech areas that could threaten national security, like artificial intelligence and quantum computing. It was slated to be announced last fall, but has faced pushback from the Treasury Department, which has been fielding concerns from big businesses and Wall Street, Semafor reported in December.

Some sources said they are still expecting the White House to take the lead. “Everyone’s sort of waiting to see what the administration does on this, and Congress can try to flush out a bill from there,” said Maseh Zarif, director of congressional relations at the advocacy arm of the Foundation for Defense of Democracies, a hawkish think tank.

“The administration supports bipartisan efforts in Congress to provide greater transparency on U.S. investment into China and other countries of concern,” National Security Advisor Jake Sullivan said in a statement. “At the same time, we are making progress in formulating an approach to address outbound investments in sensitive technologies. We are working with Congress, allies and partners, and industry to ensure our approach is clear for stakeholders and tailored to our national security concerns.”

One detail businesses are still worried about is how the Biden administration will define artificial intelligence in its executive order, people familiar with the matter told Semafor. The term AI is often used to refer to a wide range of different technologies, from chatbots to smart thermostats. Companies are concerned that if the White House fails to come up with a precise enough definition, it may wind up impacting investments that have nothing to do with national security.

A senior administration official stressed that the government understands the importance of “precisely defining” investments that would be covered by any executive order, and that officials would engage with businesses before anything is finalized.

U.S. Capitol building
Reuters/Jonathan Ernst

LOUISE AND MORGAN'S VIEW

There's bipartisan appetite on Capitol Hill and in the White House for policies that look tough on China, which means that legislation restricting outbound investment might actually have a chance of passing, despite a divided Congress.

Observers have described Cornyn and Casey’s bill as a “reverse CFIUS,” referring to the Committee on Foreign Investment in the United States, which is responsible for reviewing the national security implications of overseas investments in American companies.

“If one of the bigger things we did over the last four years was beef up the CFIUS process to more closely scrutinize Chinese investment in the United States, I think the next phase of that is going to be looking at capital flows from America to China,” Rep. Mike Gallagher, R-Wis., chair of the new House select committee on China, told Semafor. “I think there needs to be a lot more attention paid to that.”

But there’s bound to be different ideas on the best approach, and bills that win backing from the more hawkish House GOP might not be able to get enough votes from the Democrat-controlled Senate. Biden can also reject any measures that don't secure a veto-proof majority.

Lawmakers face other challenges as well, like overcoming turf wars between different committees. Gallagher said that he wanted the China select committee to help coordinate the House’s various efforts, so that good legislative ideas don’t fall victim to “inter-committee tension or jurisdictional gaps.”

ROOM FOR DISAGREEMENT

Critics say the push to safeguard American technology has actually hurt U.S. innovation and encourages China to build its own capabilities. Attorney Stephen Heifetz, who focuses on national security issues at law firm Wilson Sonsini Goodrich & Rosati, argued in Semafor that the growing number of CFIUS rules has caused the U.S. to lose foreign capital and discouraged overseas firms from growing roots in America.

“Tragically and ironically, though, the U.S. government persists in reducing the appeal of the United States as a global investment and business center, undermining one of America’s biggest advantages,” he wrote.

NOTABLE

  • The Biden administration is currently favoring a narrower version of its executive order that wouldn’t impact investments in biotechnology or battery technology, Axios reported last week.
  • Figuring out how to define artificial intelligence has been a challenge not just for the White House, but also other policymakers around the world, a visiting fellow at the Carnegie Endowment for International Peace explained in a recent article.
Evidence

What We're Tracking
Gas
  • Gas, a poll-based social media app popular among teenagers, has been acquired by Discord for an undisclosed amount. For now, Discord says Gas will remain its own standalone platform.
  • Nine jurors have been selected to hear a fraud case brought by Tesla shareholders against CEO Elon Musk, who tweeted in 2018 that he had “funding secured” to take the automaker private. (He apparently didn’t.) Opening statements in the trial are scheduled to begin today.
  • Getty Images is suing Stability AI, the company behind popular generative art tool Stable Diffusion, for copyright infringement. Getty alleges that Stability AI used millions of its photos to train Stable Diffusion without permission.
Obsessions

There’s a controversy brewing over at the tech news site CNET, which didn't disclose that it was using artificial intelligence to write news articles. It was spotted by another tech site, Futurism, which wrote about errors made by the AI, including financial advice based on faulty math. CNET said it published about 75 of these articles, including one that explained compound interest.

Kudos to Futurism for its scoop, one of the first examples of how so-called large language models, such as ChatGPT, will likely create massive change and some chaos. CNET says it is reviewing the articles for any additional inaccuracies.

I think the outrage has been too focused on the inaccuracies of the AI and its potential to take away jobs. The internet is already littered with clickbait articles written by humans that often mislead readers on important topics, such as your health. That is a problem that has proven intractable.

If these articles are going to be written, it may be better that they’re written by AI. This technology is many decades away from replacing real reporting, editing, and writing. But companies developing large language models might eventually solve the technology’s perhaps biggest current limitation: Basic accuracy. That would be a huge improvement.

Reed

Ahem

Unsplash/Lucrezia Carnelos

After years of articles predicting the imminent release of Apple’s augmented reality headset, the project has reportedly been “postponed due to technical challenges,” according to Bloomberg.

As we wrote earlier this month, augmented reality — regular glasses that display images over clear lenses — is extremely challenging and may be impossible to create in a form that is sleek enough for Apple’s taste. The iPhone maker is smart to drop the idea and move on until there is some major technological breakthrough.

Apple could still come out with a virtual reality headset similar to Meta’s Quest Pro. A word of caution, though: All of Apple’s most successful products (computers, MP3 players, smartphones) debuted after there was already robust consumer interest in the category. Virtual reality headsets are a lot of fun, but they’ve so far been a novelty. Apple will have to turn them into an essential product people use every day, or else its headset will be considered a failure.

— Reed

Enthusiasms
Mill

Matt Rogers’ new startup, Mill, is hoping it can convince people to pay $33 per month to put their food scraps in a high-tech container that grinds it up into what will become chicken feed, which then gets shipped back in a box and sold to farmers. It turns out methane produced by food scraps rotting in landfills is a big contributor to global warming.

But I don’t think Mill’s ultimate plan is to rely on consumer sales. Municipalities and corporations are the real customers down the road. Cities want to compost food waste because landfills are, well, filling up. Yet setting up composting programs has proven too complicated for most cities. Mill may plan to position itself as a private sector solution. It could also entice corporations to subsidize subscriptions for employees.

Rogers has done something like this before. Nest, the company he co-founded with Tony Fadell, got energy companies to subsidize its smart thermostats.

With Mill, Rogers is likely following the same playbook: Make a cool product that appeals to early adopters and do-gooders. Then, get government agencies and other institutions to chip in.

Reed

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— Reed and Louise