Biden Finalizes Curbs on US Investing in China Chip, AI Tech

The Biden administration finalized restrictions on investments by US individuals and companies into advanced technology in China, including semiconductors, quantum computing and artificial intelligence. 

The rules, which come after more than a year of deliberation, ban some investments into those industries and require the US government to be notified about others. The goal is to prevent American capital and know-how from helping China develop critical technologies that could lend Beijing a military edge. 

“US investments, including the intangible benefits like managerial assistance and access to investment and talent networks that often accompany such capital flows, must not be used to help countries of concern develop their military, intelligence, and cyber capabilities,” Paul Rosen, assistant Treasury secretary for investment security, said in a press release.

The final framework, which takes effect Jan. 2, largely matches a proposal unveiled in June, with additional clarity on the technological parameters of the rule and the US government’s expectations around compliance. 

For example, a senior administration official said, the rule bans American investment into Chinese firms focused on advanced semiconductor technologies, but only requires notification of investment into Chinese companies focused on so-called legacy chips, which are older-generation components that are essential to a wide array of electronics. The US already curbs the export of advanced chips to China, and the investment rules are designed to complement those existing trade restrictions. 

Chinese Foreign Ministry spokesman Lin Jian said his nation “strongly deplores and firmly rejects” the US restrictions.

The Asian nation filed a diplomatic complaint with the US over the matter, Lin said at a regular press briefing in Beijing, “and will do what is necessary to firmly uphold our legitimate rights and interests.”

The regulations around AI investments, meanwhile, depend on both the computing power used to train the AI system in question, as well as its intended use. The rule bans American individuals and companies from acquiring equity in Chinese AI firms focused on military applications; investing in AI models with other applications could be subject to either a ban or a notification requirement. 

There are exemptions for certain categories of capital flows, including publicly traded securities and certain limited-partner investments. Broadly speaking, the official said, the rule is meant to capture investment patterns like those identified in a 2023 report from the Center for Security and Emerging Technology, a Washington-based think tank. The researchers found that Americans participated in 17% of global investment transactions with Chinese AI companies between 2015 and 2021. Of those deals, roughly nine in 10 were at the venture capital stage.