Biden Administration Proposes Limits on Investments in Chinese Tech Over Security Concerns

Non-disclosure, prohibited transactions could lead to $1 million fines, 20 years in prison.

U.S. Assistant Treasury Secretary for Investment Security Paul Rosen speaks during the second annual Committee on Foreign Investment in the United States (CFIUS) Conference at the Treasury Department in Washington on Sept.14, 2023. Alex Wong/Getty Images

The Biden administration has proposed new requirements that would constrain U.S. investments in artificial intelligence and other critical technology sectors in China due to national security concerns.

The U.S. Treasury Department, on Friday, announced new proposed requirements for some transactions and bans on others involving U.S. outbound investments in the development of artificial intelligence, quantum computing, semiconductor, and microelectronics technologies.

“This proposed rule advances our national security by preventing the many benefits certain U.S. investments provide—beyond just capital—from supporting the development of sensitive technologies in countries that may use them to threaten our national security,” Assistant Treasury Secretary for Investment Security Paul Rosen said.

The proposal specifically lists the People’s Republic of China—including the territories of Hong Kong and Macau—as a country of concern for which new U.S. investments may be restricted or prohibited.

Under the proposed rules, certain types of investment are banned outright, and others have to be flagged with the treasury.

Fully prohibited transactions include supercomputers or quantum computers and computing components for military purposes such as targeting, target identification, combat system logistics and maintenance; computing tools for intelligence or mass surveillance applications; and AI tools for sequencing biological data.

Notifiable transactions include designing and producing integrated circuits, as well as AI systems for certain surveillance and cybersecurity purposes.

“President Biden is committed to keeping Americans safe and is taking action to prevent the exploitation of U.S. outbound investments by countries of concern seeking to develop sensitive technologies or products that are critical to the next generation of military, intelligence, surveillance, or cyber-enabled capabilities that pose national security risks to the United States,” the Treasury Department said.

Those who fail to disclose notifiable transactions or proceed with prohibited transactions under the new proposed rules could face punishment under the International Emergency Economic Powers Act. Punishments range from civil penalties to criminal charges carrying a fine of up to $1 million and a potential prison sentence of up to 20 years.

The proposed Treasury Department rules follow a comment period that President Joe Biden initiated through an executive order last August. The Treasury Department is now seeking comment on the new rulemaking proposal by Aug. 4, after which it is expected to set the final rule into motion.

Rising Concerns

These newly proposed rules come about amid rising concerns in the United States that the Chinese regime may gain a military advantage through intellectual property theft, espionage, cyber exploitation, forced technology transfers, or influence campaigns targeting U.S. technology firms, government offices, and military labs.

The Office of the U.S. Trade Representative assessed in a 2018 report that the United States loses between $225 billion and $600 billion per year in intellectual property value as a result of theft stemming from Chinese actors and the Chinese government.

A bipartisan group of U.S. Senators introduced legislation earlier this month, requiring the U.S. Department of Justice to provide more transparency about its efforts to stop the Chinese regime from cribbing off U.S. technological innovations through intellectual property theft and forced technology transfers.

Last month, the Biden administration ordered a China-linked cryptocurrency mining company and its partners to sell off its land holdings near the F.E. Warren Air Force Base in Cheyenne, Wyoming, citing concerns the operation could provide a front for Chinese intelligence gathering efforts focused on the strategic nuclear missile components housed at the base.