According to Bloomberg, the U.S. government is moving forward with plans to limit investments by U.S. individuals and companies in China, targeting key areas like AI, semiconductors, and quantum computing. Reuters reports that these regulations stem from President Joe Biden's executive order in August, which aims to prevent U.S. expertise from aiding China's technological advancements. The Treasury Department seeks to finalize these rules by year-end, with public feedback open until August 4.
The proposed regulations for outbound investments specifically target AI, semiconductors, and quantum computing investments. These technologies are crucial for future military, intelligence, mass surveillance, and cyber warfare capabilities that could pose risks to the U.S. On the other hand, the goal is to curb U.S. investments that could help China develop advanced technologies, gain a competitive edge in global markets, and improve its competitive edge against the U.S.
While these measures are part of a broader strategy to limit China's access to U.S. technologies and know-how, several exceptions include transactions that serve U.S. national interests or involve publicly traded securities.
The proposed rules will impact private equity, venture capital funds, and U.S. limited partners' investments in foreign-managed funds and convertible debt. The planned restrictions target various types of transactions, including equity acquisitions, debt financing convertible to equity, greenfield investments, joint ventures, and specific limited partner investments in non-U.S. pooled funds.
These rules address sectors like AI, semiconductors, quantum information technologies, and AI systems. Initially, the regulations will focus on China, Macau, and Hong Kong, but there is potential for expansion to other regions. U.S. companies investing in these areas must exercise greater due diligence to ensure compliance with the new rules.
The new regulations align with existing export controls on advanced technology to China, reinforcing the U.S. strategy to limit China's military modernization efforts. Those who violate the rules could face severe penalties, including criminal and civil charges, and their investments might be undone. Certain transactions, such as those involving publicly traded companies, specific-sized fund investments, and complete ownership buyouts, might be exempt.
To ensure that its new restrictions work and limit China's access to U.S. technologies and money, the U.S. has been discussing these investment restrictions with its allies to ensure a coordinated approach. As a result, the European Commission and the United Kingdom are also considering measures to address similar outbound investments.
