US to start restricting American firms from investing in Chinese tech, AI businesses

The United States is preparing to roll out new rules aimed at limiting American investments in artificial intelligence (AI) firms in China. The rules, now under final review by the Office of Management and Budget (OMB), are expected to be announced soon, marking a significant move in the US-China tech rivalry.

These restrictions stem from an executive order signed by President Joe Biden in August 2023, in order to to prevent American expertise from contributing to China’s military advancement

The upcoming regulations will focus on curbing outbound investments in sectors which are considered very sensitive, such as AI, semiconductors, microelectronics, and quantum computing.

In addition to restricting certain transactions, the rules will require US investors to notify the Treasury Department about investments in these areas. Officials expect the final version of the regulations to bring more clarity on what will fall under these restrictions, particularly regarding AI use cases and investor obligations.

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Laura Black, a former Treasury official and current lawyer at Akin Gump in Washington, noted that the timing suggests the rules might be published ahead of the US presidential election on 5 November.

She explained that regulations of this kind usually offer at least 30 days before taking effect, giving businesses time to adjust.

The Treasury Department initially shared a draft version of the rules in June, inviting public feedback.

Those draft regulations placed the burden on US companies and individuals to determine whether their transactions would be restricted. They also highlighted specific scenarios in which AI investments would be banned, including projects involving certain levels of computing power or those linked to military applications.

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However, some exceptions were included in the proposals, such as investments through mutual funds, index funds, or certain types of syndicated debt financing. Limited partnerships and other financial structures are expected to receive further clarification in the final version.

These new restrictions reflect growing US concerns about China’s advancements in cutting-edge technologies and efforts to limit the flow of capital and knowledge that could bolster its military capabilities.

As tensions between the two countries continue to simmer, the move signals a broader strategy by the US to protect its technological edge while tightening controls on critical industries.

With the rules expected to be published in the coming days, the focus will soon shift to how these new restrictions will be enforced and what impact they will have on the flow of investments between the US and China.