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U.S. Proposes Targeted Restrictions for AI, Tech Investment in China

Proposed regulations seek to limit AI and technology investments in China.Individuals and companies in the United States are responsible for determining restricted transactions. Exceptions apply to transactions involving the national interest of the United States and in certain other circumstances.

U.S. President Joe Biden and other officials attend a panel on artificial intelligence in San Francisco in 2023
Credit: Reuters

These guidelines, released by the US Treasury Department, are part of President Joe Biden's executive order to protect national security by limiting US investments that could potentially help China develop sophisticated technologies.

The proposed laws require US individuals and businesses to decide which transactions will be restricted or prohibited. The Treasury Department has extended the comment period until August 4th, following which the regulations are scheduled to be enacted by the end of the year.

Paul Rosen, Treasury Assistant Secretary for Investment Security, claimed that the proposed regulation is critical in preventing US investments from funding the development of sensitive technology that could endanger national security.

The requirements apply to outbound investments in nations of concern, with exceptions for transactions that are regarded to be in the national interest of the United States. While certain AI applications and transactions using specific processing capacity would be forbidden, transactions connected to the development of AI systems or semiconductors that are not otherwise prohibited would require notification.

Additional exceptions apply to publicly traded securities, limited partnership investments, buyouts of ownership in countries of concern, transactions between U.S. parent companies and majority-controlled subsidiaries, pre-existing binding commitments, and certain syndicated debt financings. Transactions involving third countries that address national security concerns adequately may also be exempted.

Initially targeting China, Macau, and Hong Kong, the scope of the rules could potentially be expanded to other countries in the future. The proposed rules will require increased due diligence from U.S. investors looking to invest in China or Chinese companies operating in the covered sectors.

Laura Black, a lawyer at Akin Gump and former Treasury official, highlighted that the proposed rules would impact U.S.-managed private equity and venture capital funds, as well as some U.S. limited partners' investments in foreign managed funds and convertible debt. The regulations also extend to certain Chinese subsidiaries and parents, and they may prohibit certain investments by U.S. companies in third countries.

The goal of these restrictions is to prevent U.S. funds from aiding China in developing its own capabilities in advanced technologies, particularly those with military applications. Violators of the rules could face criminal and civil penalties, and investments may be unwound.

  • Proposed rules aim to restrict AI and tech investments in China

  • U.S. individuals and companies responsible for determining restricted transactions

  • Exceptions for transactions in the U.S. national interest and certain other cases


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