The United States has introduced draft rules to regulate investments in China, particularly in AI and other advanced technology sectors that could pose national security threats. The US Treasury Department released these proposed rules following President Joe Biden's executive order in August, which targets semiconductors, quantum computing, and AI investments. The draft rules require US individuals and companies to identify and report transactions that may be restricted or banned, aiming to prevent US expertise from aiding China's technological advancements.

The Treasury's proposed rules include various exceptions, such as transactions in the US national interest or involving publicly traded securities. The regulations would specifically ban transactions involving AI for certain end uses and systems using significant computing power but require notifications for other AI-related investments. These rules focus primarily on China, Macau, and Hong Kong, though they might be expanded later.

Former Treasury official Laura Black highlighted that these rules would necessitate increased due diligence by US investors when dealing with Chinese companies in the specified sectors. The regulations also align with existing export controls on advanced semiconductors to China, aiming to hinder China's military modernisation efforts. Violations of these rules could result in criminal and civil penalties, including unwinding investments.d

Why does it matter?

Treasury officials have engaged with international partners to discuss these investment restrictions, with the European Commission and the United Kingdom considering similar measures to address outbound investment risks. Public comments on the proposed rules are open until 4 August, with final regulations expected by the end of the year.