Biden’s Administration Restrict U.S. Investments In China With Chips, AI And Of Foreign Companies

The Treasury Department issues a proposal to formulate rules for investing in technology

The US President’s administration has advanced Joe Biden with plans to limit the investments of American and Foreign individuals and companies inside China, with a focus on curbing Beijing’s ability to achieve progress in the sector semiconductors and quantum computing artificial intelligence.

Technological battle

The restrictions – more than a year in the making – are part of Biden’s strategy to slow Beijing’s race to develop sensitive technologies that threaten US national security.

US Treasury Secretary Janet Yellen said about a year ago that the planned foreign investment restrictions would be carefully defined and would complement existing export restrictions. These restrictions – announced in October 2022 – represented an escalation in Washington’s technology battle with Beijing, as they prevented the sale of advanced semiconductors, as well as the technology and knowledge necessary to manufacture them.

The US Treasury Department released details today via a so-called Notice of Proposed Rulemaking, one of several bureaucratic steps initiated under an executive order issued last August. The Ministry did not specify any timetable for issuing the final rules or when they will take effect.

The more detailed proposal shows that Washington is paying a growing interest in artificial intelligence. During a telephone interview with reporters today, a senior US Treasury Department official said that the US administration wants to prevent China from developing artificial intelligence applications that could be used, among other things, to target weapons in combat or for comprehensive surveillance, such as location tracking.

The US Treasury will accept public comments on the proposals until August 4. Details include:

What types of investments does this apply to?

Transactions affected by the proposed measures would include equity acquisitions, convertible debt financings, greenfield investments, venture capital joint ventures, and certain limited partner investments in a non-U.S. crowdfunded investment fund.

What sectors will be affected?

The rules will prohibit, or require notification of, certain transactions that relate to:

• Semiconductors and microelectronics
• Quantitative information technologies
• Artificial intelligence systems
• The proposal provides “alternatives to prohibiting covered transactions related to the development of any artificial intelligence system that is trained using a specified amount of computing power, as well as that is trained using a specified amount of computing power exploiting underlying biological sequence data.”

What are the penalties for violating the rules?

The US Treasury Department can impose civil penalties on individuals and companies found to be violating the rules and can refer cases to the Attorney General’s Office for criminal prosecution.

Are there any exceptions?

The US Treasury Department has proposed exempting certain transactions, including investments in publicly traded companies, fund investments up to a “certain size,” and acquisitions of a full ownership interest, among other things.

In a separate context, a bipartisan legislative effort to limit foreign investments collapsed late last year. Republicans inside objected US Congress On whether the sector-based management approach should be codified or rely on individual sanctions for companies. House Speaker Mike Johnson formed a working group on this matter, with the aim of reaching consensus by the end of last March. No new draft law has been issued yet.

Bloomberg