US Bans Investments Into Cutting Edge Chinese Tech

The Biden administration unveiled a finalized set of regulations preventing U.S. investment into Chinese efforts to develop advanced technology including semiconductors, quantum systems and artificial intelligence.,

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The Department of Treasury final regulations come after a 2023 executive order mandating restrictions on outbound investments in specific technologies and entities predominantly owned by individuals or organizations in “countries of concern” (see: US Restricts Investment in Chinese AI, Other Technologies).

Senior administration officials told reporters Monday afternoon the new program aims to prevent U.S. dollars from bolstering the military and intelligence capabilities of foreign adversaries like China while ensuring open investment practices remain intact.

The final rule applies to “a U.S. person’s acquisition of an equity interest, or contingent equity interest, certain debt financing, certain greenfield investments or investments that could result in corporate expansion and joint ventures,” an official said Monday ahead of the announcement of the new program. U.S. citizens must also notify the Treasury of certain transactions with covered foreign entities, including AI systems built for specific applications or trained with substantial computing power.

The final rule contains a number of exemptions, including investments by U.S. persons in publicly-traded securities such as mutual funds and derivative securities. The final rule permits a U.S. person to buy out all of a country of concern’s ownership. It also contains an exemption for national security interests.

Treasury previously published a notice of proposed rule-making in June that identified the People’s Republic of China, Hong Kong and Macau as countries that pose a national security threat to the United States due to their aims “to develop sensitive technologies and products critical for military, intelligence, surveillance, or cyber-enabled capabilities” (see: US Treasury Moves to Limit Investments in Chinese Tech Firms).

The administration said in a fact sheet that the selected set of technologies are “core to the next generation of military, cybersecurity, surveillance and intelligence operations.”

The final rule prohibits investment into any AI system trained on a computer with at least 10 to the power of 25 floating point operations – a number that decreases to 10 to the power of 24 FLOPS when it comes to biological sequence data. Federal notification requirements kick in for certain end uses, or models trained on 10 to the power of 23 FLOPS.

The rule is more preemptory when it comes to quantum computing: It prohibits any investment related to the development of quantum computing or the production of critical components required to manufacture a quantum computer.

Paul Rosen, assistant secretary for investment security, said in a statement the final regulation “takes targeted and concrete measures to ensure that U.S. investment is not exploited to advance the development of key technologies by those who may use them to threaten our national security.”

“U.S. investments, including the intangible benefits like managerial assistance and access to investment and talent networks that often accompany such capital flows, must not be used to help countries of concern develop their military, intelligence, and cyber capabilities,” he added.