US Treasury Department restricts US investments in Chinese AI, chips

October 29, 2024 03:58 PM

A group of five cloud shapes float across a background of the Chinese flag made up of red and yellow bricks. The clouds are collages made out of close-up photographs of shiny silver silicon surfaces.

The US Treasury Department has issued a Final Rule restricting US investments in foreign technologies deemed to pose a “national security concern,” specifically targeting sectors like semiconductors, quantum technology, and AI.

The move adds to President Joe Biden’s 2023 Executive Order aimed at curbing China’s ability to leverage advanced technology for military, surveillance, and cybersecurity capabilities.

Under the new rule, US investors must notify the Treasury Department of investments in these “sensitive” sectors, with the Treasury empowered to nullify any transactions that violate the restrictions.

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“US 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 [China’s] military, intelligence, and cyber capabilities,” said Paul Rosen, assistant secretary for investment security.

The rule continues the Biden administration’s hard-line approach to technology exports following export controls preventing hardware developers like Nvidia from shipping high-power GPUs to China.

The latest, investment-focused rule requires US entities to disclose any technology-related investments that fall under the sensitive sector categories, including equity acquisitions, joint ventures, and types of debt financing convertible to equity.

The Final Rule covers investments in semiconductors and microelectronics, quantum information technologies, and AI in China, Hong Kong, and Macau.

Investors have to perform “reasonable and diligent inquiries” before proceeding with investments such investments, with the Treasury Secretary given powers to “nullify, void, or otherwise require divestment” of any business or individual found to have conducted in a prohibited transaction.

The 297-page document outlining the Final Rule also states that investors who violate it may face civil penalties and have their cases treated as criminal violations, potentially referred to the Attorney General and the Justice Department.

“AI, semiconductors, and quantum technologies are fundamental to the development of the next generation of military, surveillance, intelligence and certain cybersecurity applications like cutting-edge code-breaking computer systems or next-generation fighter jets,” Rosen said.

“This Final Rule takes targeted and concrete measures to ensure that US investment is not exploited to advance the development of key technologies by those who may use them to threaten our national security.”