U.S. Proposes Restrictions for Investments in Chinese Technology Sectors

TMTPOST—The Biden administration has revealed draft rules to restrict new American investments in critical Chinese technology sectors that could enhance China's military capabilities.

The proposed rules revealed by the Treasury Department on Friday would ban certain U.S. investments in Chinese companies involved in developing semiconductors, quantum computers, and artificial intelligence systems. The administration aims to prevent American funding from aiding China in advancing technologies that could be used for weapons tracking, government intelligence, and surveillance.

The regulations are expected to be finalized later this year. They come nearly a year after U.S. President Joe Biden signed an executive order calling for the investment ban, which will largely affect venture capital and private equity firms that do business with Chinese companies.

“This proposed rule advances our national security by preventing the many benefits certain U.S. investments provide — beyond just capital — from supporting the development of sensitive technologies in countries that may use them to threaten our national security,” said Paul Rosen, the Treasury Department’s assistant secretary for investment security.

The new restrictions require investors to inform the Treasury Department about certain types of transactions, with some investments being explicitly banned. As part of this program, the Treasury Department holds the authority to enforce divestments, and any violations may be referred to the Justice Department for criminal prosecution. These regulations cover equity investments, debt financing convertible to equity, and joint ventures.

It specifically would prohibit American investors from funding AI systems in China that could be used for weapons targeting, combat and location tracking, among other military applications, according to a senior Treasury official.

The U.S. Treasury is seeking comment on the proposal through August 4 and then is expected to issue a final rule.

Biden administration officials, including Treasury Secretary Janet Yellen, have insisted they have no interest in “decoupling” from China. However, tensions between the two nations have increased in recent years.

Last month, Biden announced a significant hike in tariffs on various Chinese imports, including electric vehicles, solar cells, semiconductors, and advanced batteries. This move aims to protect key American industries from what he describes as unfair competition subsidized by the Chinese government.

In May, Biden issued an order blocking a Chinese-backed cryptocurrency mining firm from owning land near a Wyoming nuclear missile base, calling its proximity to the base a “national security risk”.

Chinese officials have raised concerns about remarks on the new investment restrictions by U.S. counterparts, including Yellen. These concerns arise amidst a decline in U.S.’s investment in China. According to data from the Rhodium Group, U.S. investment in China has averaged $10 billion annually since 2019, down from an average of $14 billion per year between 2005 and 2018. U.S. venture capital investment in China hit a 10-year low of $1.3 billion in 2022.

The Biden administration is also urging U.S. allies to implement their own programs to screen investments in China.