The US Moves to Regulate Investments in Chinese Technologies, Including Quantum and AI
The White House has taken steps to restrict certain US investments in sensitive technologies in China, including semiconductors, microelectronics, quantum computing, and artificial intelligence. President Joe Biden signed an executive order on Wednesday, directing the US Treasury Department to regulate these investments. However, it is important to note that implementing these measures will take time.
Under the new order, the focus will be on regulating investments in countries of concern, with China, Hong Kong, and Macau listed as initial targets. The goal is to prevent national security risks by controlling investments in Chinese companies involved in areas that could provide military and intelligence advantages to China.
The regulation will not be retroactive and will only apply to future investments. This means it will not affect existing export controls and inbound investment screening programs. The US already restricts or bans the export of many technologies and products to China that are currently being considered for the new program.
The Treasury has issued an advance notice of proposed rulemaking, allowing companies and investors to comment before the formal notice of proposed regulation. Experts predict that the entire process could take several months, possibly extending into 2024 due to the need for further public comment.
Investments that convey intangible benefits to Chinese entities, such as equity interests, greenfield investments, and joint ventures, will be subject to regulation. However, there may be exceptions for investments in publicly traded securities, index funds, mutual funds, and other similar instruments that are less likely to result in intangible benefits.
The Treasury is considering prohibiting US investments in Chinese development of certain technologies, such as electronic design automation software, semiconductor manufacturing equipment, and supercomputers. It is also exploring the option of requiring notification for investments in less advanced integrated circuits and considering a ban on US investments in the production of quantum computers, quantum sensors, and quantum networking and communication systems.
In the AI sector, the Treasury is contemplating notification requirements for US investments in Chinese entities working on software that incorporates an AI system and could have military or intelligence applications. They are also seeking input on how to shape a prohibition on US investments in Chinese activities related to AI software designed for uses that could have national security implications, aiming to ensure that any measures are appropriately tailored.
The US government has consulted with allies and partners regarding these moves. While no coordinated action by allies is expected immediately, countries like Britain and the European Union have already indicated their intention to implement similar restrictions. In June, the Group of Seven advanced economies agreed that restrictions on outbound investments should be part of the overall toolkit.
The regulatory process will allow the Treasury to investigate potential violations, pursue penalties, and even unwind future investments. However, it is crucial to remember that these measures are still in the early stages and will require further development and implementation.
In summary, the US is taking steps to regulate investments in Chinese technologies, focusing on areas that could present national security risks. These regulations will be implemented gradually, and the process is expected to take time to allow for public comment and refinement. The aim is to prevent China from gaining military and intelligence advantages, while avoiding significant disruptions to existing export controls and investment screening programs.
