A worker produces semiconductor products for export to Europe and the United States at a production line of a semiconductor manufacturing company in Binzhou, east China's Shandong province, on April 1, 2024.
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The United States on Friday issued draft rules to prohibit or require notification of certain investments in artificial intelligence and other technology sectors in China that could threaten US national security.
The US Treasury Department published the proposed rules and a set of exceptions after an initial comment period following an executive order signed by President Joe Biden last August. The rules place the onus on US individuals and companies to determine which transactions will be restricted or blocked.
Biden's executive order, which directed regulation of certain American investments in semiconductors, microelectronics, quantum computing and artificial intelligence, is part of a broader campaign to prevent American knowledge from helping the Chinese develop cutting-edge technology and dominate global markets.
The United States is on track to implement the regulations by the end of the year as expected. Public comments on the proposed rules will be accepted until August 4.
“This proposed rule strengthens our national security by preventing the many benefits that certain U.S. investments provide — beyond just capital — from supporting the development of sensitive technologies in countries that might use them to threaten our national security,” said Paul, Assistant Secretary of the Treasury for Investment Security. Rosin.
The Treasury Department said the new rules are intended to implement a “narrow and targeted national security program” focused on certain foreign investments in countries of concern.
The Treasury Department outlined the proposed rules in August. The Treasury Department on Friday included additional exceptions, such as transactions deemed to be in the US national interest.
The proposed rules would prohibit transactions in artificial intelligence for certain end uses, which involve systems trained to use a specified amount of computing power, but would also require notification of transactions related to the development of artificial intelligence or semiconductor systems that are not otherwise prohibited.
Focus on China, Macau and Hong Kong
Other exceptions apply to publicly traded securities, such as index funds or mutual funds; certain limited partnership investments; Acquisitions of ownership of the state of interest; Transactions between a U.S. parent and a majority-controlled subsidiary; Binding obligations that precede the date of the order; and some syndicated debt financings.
Certain third-country transactions that are determined to address national security concerns, or in which the third country appropriately addresses national security concerns, may also be exempt, the Treasury said.
The order initially focuses on China, Macau and Hong Kong, but US officials said it could be expanded later.
The Treasury is trying to limit the scope of the rule as narrowly as possible, but it requires more vigilance by companies seeking to invest in China, said Laura Black, a former Treasury Department official and a lawyer with Akin Gump in Washington.
“US investors will need to do more due diligence when making investments in China or investments involving Chinese companies operating in the covered sectors,” she said.
Black said the Treasury Department's proposed rules keep US-managed private equity and venture capital funds in the crosshairs, as well as the investments of some US limited partners in foreign-managed funds and convertible debt.
She added that some Chinese subsidiaries and parent companies will be covered by this rule, which will also ban some investments by US companies in third countries.
Besides equity investments, joint ventures, and new ventures, virtual debt can also be redeemed when it becomes equity.
Regulations follow restrictions on the export of certain technology to China, such as those preventing the shipment of certain advanced semiconductors.
The goal is to prevent American funds from helping China develop its own capabilities in those areas to modernize its military.
Those who violate the rules could be subject to criminal and civil penalties, and investments may be cancelled.
The Treasury said it had cooperated with US allies and partners on the objectives of the investment restrictions, and noted that the European Commission and the UK had begun to consider whether and how to address offshore investment risks.
