The US Department of the Treasury issued a rule on Monday, October 28th, to prevent the Chinese military from gaining an advantage in advanced technology through American investments. The new rule aims to restrict and monitor US investments in Chinese artificial intelligence, computer chips, and quantum computing sectors.
This final rule was based on an executive order issued by President Biden in August 2023. The executive order was designed to prevent US capital and expertise from aiding in the development of technologies that could support the modernization of the Chinese military and jeopardize US national security. The focus is on private equity investments, venture capital, joint ventures, and greenfield investments.
The executive order lists certain “countries of concern” for which the US restricts investment and specifically identifies the People’s Republic of China, Hong Kong, and Macau in separate appendices.
The executive order came into effect on January 2nd.
White House senior officials stated on Monday that all technologies covered by the rule pose “particularly severe national security risks” to the United States.
Paul Rosen, Assistant Secretary of the Treasury responsible for investment security, emphasized that US investments must not be used to assist relevant countries in developing their military, intelligence, and cyber capabilities. He noted that these investments not only bring in funding but could also bring “intangible benefits,” such as operational management, recruiting top talent, and leveraging other sources of financing.
“Artificial intelligence, semiconductors, and quantum technology are fundamental for cybersecurity applications that can be used for cutting-edge decryption computer systems or next-generation fighter jets,” he wrote.
Curbing China’s high-tech ambitions has been one of the few issues with broad support from both the Republican and Democratic parties.
In addition to blocking investments, the Treasury Department also requires US individuals and companies to notify the US government of transactions involving “technologies and products that may pose a threat to US national security.”
Violators could face fines of up to $368,136 or a ban on transactions worth double the fine, whichever is higher. The Treasury Department is establishing a Global Transaction Office to oversee the enforcement of the new regulations.