This regulatory action is rooted in an executive order signed by President Joe Biden in 2023, which emphasizes the critical nature of these technologies for military and cybersecurity applications. Paul Rosen, Assistant Secretary for Investment Security, articulated the urgency of the rule, stating, “Artificial intelligence, semiconductors, and quantum technologies are fundamental to the development of next-generation military capabilities.” He underscored that this initiative aims to ensure U.S. investments do not contribute to advancements that could be used against national security.
Under the new rule, U.S. individuals and companies will be prohibited from engaging in transactions related to the development of advanced semiconductors and AI systems, with stringent reporting requirements imposed on any transactions that are not outright banned. The regulation is particularly strict regarding quantum computing, prohibiting all transactions associated with the development and production of quantum computers and their critical components.
Additionally, the Treasury Department will establish the Office of Global Transactions within its Office of Investment Security to oversee the new Outbound Investment Security Program. This office will play a crucial role in managing compliance and enforcing the new investment restrictions.
While the U.S. government argues that the rule is essential for national security, it has drawn sharp criticism from Beijing. Chinese Foreign Ministry spokesperson Lin Jian condemned the U.S. for its technology policies, asserting that the rule reflects an intent to hinder China’s rise as a global power. “China deplores and rejects the U.S.’s Final Rule to curb investment in China,” he stated, vowing to defend the country’s rights and interests vigorously.
The rule does not solely focus on tangible assets; it also addresses the intangible benefits that accompany investments, which can enhance the operational capabilities of Chinese firms. According to an informational statement released by the Treasury, these benefits include increased market access, managerial assistance, and access to investment networks.
Experts note that the implications of this rule extend beyond just financial transactions. Stephen Ezell, Vice President for Global Innovation Policy at the Information Technology & Innovation Foundation, remarked that U.S. companies must reevaluate their investments in light of these new restrictions. “This is a clear signal from the U.S. government that investors need to think critically about prohibited transactions that could enhance China’s technological capabilities,” he stated.
Daniel Gonzales, a senior scientist at the RAND Corporation, added that the rule aims to close loopholes previously exploited by U.S. venture capital firms that inadvertently supported Chinese technological advancements with military relevance. He cited past instances, such as the involvement of Sequoia Capital in the development of TikTok’s AI algorithms, as cases that prompted this regulatory response.
As the U.S. government intensifies its scrutiny of investments in sensitive technologies, this new rule underscores the growing complexity of global technology competition and the imperative to safeguard national security interests.
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