The Treasury Department has proposed a rule to restrict and monitor U.S. investments in China for artificial intelligence, computer chips, and quantum computing. This rule stems from President Joe Biden’s executive order in August 2023, which aims to limit the access that “countries of concern” have to American dollars that fund advanced technologies. Specifically, the order identified China, Hong Kong, and Macau as countries of concern due to their potential to enhance military, intelligence, surveillance, and cyber capabilities.
The proposed rule outlines the required information that U.S. citizens and permanent residents must provide when engaging in transactions related to AI systems in China. It aims to prevent American investors from funding AI systems that could be used for military purposes, such as weapons targeting, combat, and location tracking. These restrictions are designed to limit China’s development of technologies that could give it a military edge or dominance in emerging sectors like electric vehicles.
J. Philip Ludvigson, a partner at King & Spalding and a former Treasury official for Investment Security, commented that companies and investors are now getting a clearer understanding of what will be expected of them under the new outbound investment program. These added details are crucial for the private sector as they will be responsible for the due diligence and compliance associated with new investments. Additionally, Craig Allen, president of the U.S.-China Business Council, expressed support for the Biden administration’s efforts to protect U.S. national security while maintaining robust commercial exchanges with China for the benefit of American companies, workers, and the economy.
The proposed rule is open for public comment until August 4, 2024, after which a final rule is expected to be issued. Despite tensions between the U.S. and China, Biden administration officials, including Treasury Secretary Janet Yellen, have emphasized that they have no intention of completely disconnecting from China. However, incidents based on national security concerns between the two nations have been increasing in recent years. For instance, after the U.S. military shot down a suspected Chinese spy balloon in February 2023, China threatened repercussions. In another incident, Biden issued an order blocking a Chinese-backed cryptocurrency mining firm from owning land near a Wyoming nuclear missile base, citing national security risks.
The proposed rule is part of broader efforts by the Biden administration to address national security concerns related to advanced technologies and investments in China. By implementing restrictions on certain types of investments and monitoring transactions in sensitive sectors like AI, the U.S. aims to prevent China from developing technologies that could pose a threat to national security. As the U.S.-China relationship continues to face challenges, these measures reflect the Biden administration’s stance on protecting American interests while maintaining economic and commercial ties with China. The finalization of this rule will be crucial in shaping future investment activities and relationships between the two countries.
