(Bloomberg) — The Biden administration has advanced plans to restrict investment by U.S. individuals and companies in China, with a focus on curbing Beijing's dominance in semiconductors, quantum computing and artificial intelligence.
The Treasury Department announced Friday that the proposed new rules would restrict foreign investment in technologies essential to “next-generation military, intelligence, surveillance, and cyber capabilities that pose national security risks to the United States.”
The restrictions, which have been in the works for more than a year, are part of President Joe Biden's strategy to slow Beijing's moves in the race to develop sensitive technologies that threaten U.S. national security.
U.S. Treasury Secretary Janet Yellen said nearly a year ago that the planned foreign investment controls would be focused and complement existing export controls. The restrictions, announced in October 2022, marked an escalation in the technology war between Washington and Beijing, blocking the sale of advanced semiconductors as well as the technology and know-how to manufacture them.
The Treasury Department released the details Friday in a so-called “notice of proposed rulemaking,” one of several bureaucratic steps set in motion by a presidential order issued last August. The department did not say when it would issue a final rule or when it would take effect.
The more detailed proposal underscores the U.S. government's growing sensitivity to artificial intelligence. In a conference call with reporters on Friday, a senior Treasury official said the administration wants to prevent China from developing AI applications that could be used for mass surveillance, such as targeting and location tracking of weapons in combat.
The Ministry of Finance will accept public comments on the proposal until August 4. Details are as follows:
What types of investments does this apply to? Affected transactions include acquisitions of stock, debt financings convertible into equity, greenfield investments, joint ventures, and certain investments as limited partners in pooled investment funds outside the U.S. What sectors are affected? The rule would prohibit or require notice of certain transactions related to: Semiconductors and microelectronics Quantum information technology Artificial intelligence systems The proposal provides an “alternative to the prohibition on covered transactions related to the development of AI systems that are trained using specified amounts of computing power and that are trained using specified amounts of computing power primarily using biological sequence data.” What are the penalties for violations? Treasury can pursue civil penalties against individuals and companies found to be in violation and can refer cases to the Attorney General’s Office for criminal prosecution. Are there exceptions? Treasury proposed to exempt some transactions, including publicly traded companies, investments of funds of “certain size,” and wholly owned acquisitions.
Meanwhile, a bipartisan legislative effort to restrict foreign investment failed late last year. Key Republicans in Congress could not agree on whether to enact the administration's sectoral approach into law or rely on sanctions against individual companies. House Speaker Mike Johnson convened a working group on the issue with the goal of reaching an agreement by the end of March. They have yet to introduce new legislation.
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