Trump’s Executive Order Slams Door on US Investment in China’s Booming AI Sector

Washington just rewrote the rules of tech finance. A new executive order from the Trump administration is set to sever a critical funding pipeline, blocking US capital from flowing into China's artificial intelligence market. The move sends shockwaves through venture capital circles and tech boardrooms on both sides of the Pacific.

The Investment Chill

For years, American pension funds, endowments, and VCs have been funneling billions into Chinese AI startups and tech giants. That spigot is now being turned off. The order leverages presidential authority to restrict US persons from making investments in—or providing certain services to—Chinese companies developing AI systems with potential military or surveillance applications. It's a targeted decoupling aimed squarely at China's technological ascent.

Silicon Valley's Conundrum

The directive creates an immediate dilemma for US investors. Portfolios heavy with Chinese tech exposure face forced divestment, while future deals in one of the world's most dynamic AI ecosystems are now off-limits. It's a classic case of geopolitics trumping portfolio theory—much to the chagrin of fund managers who spent years building bridges, only to see them dynamited by executive fiat.

The Ripple Effect

Beyond direct investment, the order threatens to freeze out US limited partners from Chinese venture funds and could complicate licensing agreements and joint research ventures. Chinese AI firms, suddenly cut off from deep-pocketed American investors, may pivot to alternative funding from sovereign wealth funds or accelerate listings on domestic exchanges. Some analysts predict a surge in 'shadow capital' and creative financial engineering to bypass the new walls—because where there's a yield, there's always a way.

The order doesn't just rewire investment flows; it fundamentally alters the global tech landscape. It forces a stark choice between financial opportunity and national security, leaving Wall Street to count the opportunity cost while Beijing doubles down on self-sufficiency. In the high-stakes game of technological supremacy, the US just declared capital a controlled export. The finance guys hate that—it's terrible for fees.

Tech giants see major stock gains

Stock prices for Alibaba, the internet company listed in both Hong Kong and New York, have jumped more than 80% this year, reaching a level not seen in four years. Alibaba announced plans to spend $53 billion across three years to expand AI infrastructure and work toward artificial-general intelligence, which means human-level intelligence.

America still leads in chasing that bigger goal and making the most powerful AI systems, and China cannot match its advanced computer chips. However, Chinese businesses have already started using AI in many different ways.

Investment firms run by American companies Vanguard Group, BlackRock and Fidelity have grown their ownership in Alibaba’s Hong Kong-listed shares this year, information from data provider LSEG shows. Shares in other Chinese technology firms, Tencent and Baidu, both of which are using large-language models that power generative AI, have also climbed nearly 50%.

Ruffer, an investment company based in London, believes listed Chinese technology giants still have room to grow because their price-to-earnings ratios are lower than American peers like Alphabet, which owns Google.

Attractive valuations draw investors

Ruffer’s portfolio, worth £19 billion, about $25 billion, which includes money from American investors, has grown nearly 11% this year. Alibaba, making up 1.5% of the whole portfolio, helped drive that growth, said Gemma Cairns-Smith, who works as an investment specialist at the company.

“China is a big player in AI,” Cairns-Smith said. “It does trade at a big discount to its U.S. counterparts,” she added, and “investors risk missing out.”

David Tepper, a billionaire who manages hedge funds, has openly supported Chinese companies this year. In November, Alibaba was the largest holding in his firm Appaloosa’s disclosed listed investments, representing 16% of about $7 billion in public stock investments, a securities filing showed.

BlackRock said in July that money moving into exchange-traded funds tracking China’s broader technology sector was moving faster than in the United States this year, with American investors making up 15% of the money going into China technology ETFs that month.

Two large funds following Chinese stocks have continued growing since July. The KraneShares CSI China Internet ETF based in New York increased by $1.4 billion to almost $9 billion, and the U.S.-listed Invesco China Technology ETF more than doubled to almost $3 billion, LSEG data shows.

Private investment remains cautious

International investors had mostly left China in recent years because of strict Covid-19 policies, government actions against technology companies, and a property market collapse that slowed economic growth.

American venture capital got tangled up in strained relations between the countries, and money for private Chinese companies fell sharply. Some venture firms with teams in both nations, like Sequoia Capital, had to separate their operations and change their names.

Even so, funds based in China have raised U.S.-dollar funds this year, trying to benefit from renewed excitement about China’s AI developments.

The Biden administration in January blocked investments into private Chinese companies in specific high-tech areas, including quantum computing and AI models above certain technical levels. Efforts to expand these limits are moving forward in Congress, even after Trump and Chinese leader Xi Jinping reached a trade agreement in October.

The National Defense Authorization Act, which the House approved on Wednesday, will let Trump add hypersonic-weapon technology to the banned list and require more information about how American investors are helping Chinese AI.

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