U.S. Finalizes Rules to Restrict Investment in Chinese AI and Advanced Technologies

US finalizes rules to curb AI investments in China, impose other restrictions

A central processing unit (CPU) semiconductor chip is displayed among flags of China and U.S., in this illustration picture taken Feb. 17, 2023. Reuters-Yonhap The Biden administration said on Monday it is finalizing rules that will limit U.S. investments in artificial intelligence and other technology sectors in China that could threaten U.S. national security. The rules, which were proposed in June by the U.S. Treasury, were directed by an executive order signed by President Joe Biden in August 2023 covering three key sectors: semiconductors and microelectronics, quantum information technologies and certain AI systems. The new rules are effective Jan. 2 and will be overseen by Treasury's newly created Office of Global Transactions. Treasury said the "narrow set of technologies is core to the next generation of military, cybersecurity, surveillance, and intelligence applications." The rule covers technologies like "cutting-edge code-breaking computer systems or next-generation fighter jets," added Paul Rosen, a senior Treasury official. He added that "U.S. 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." Korea vows active response to US investment curbs on China 2024-10-29 10:01 | Economy The rule is part of a broader push to prevent U.S. know-how from helping the Chinese to develop sophisticated technology and dominate global markets. Commerce Secretary Gina Raimondo said earlier this year the rules were crucial to prevent China's developing military-related technologies. The new rules contain a carve out allowing U.S. investment in publicly traded securities, but the officials said the U.S. already has authorities under previous executive order barring buying and selling of securities of certain designated Chinese companies. The House select committee on China has criticized major American index providers for directing billions of dollars from U.S. investors into stocks of Chinese companies that the U.S. believes are facilitating the development of China's military. (Reuters)

US finalizes rule restricting investment in Chinese tech firms

The Treasury Department on Monday finalized a new rule meant to prevent U.S.-based people and companies from investing in the development of a range of advanced technologies in China, thereby preventing Beijing from accessing cutting-edge expertise and equipment. The rule, which implements an executive order signed by President Joe Biden in 2023, focuses particularly on advanced semiconductors and microelectronics and the equipment used to make them, technology used in quantum computing, and artificial intelligence systems. When it takes effect on January 2, the rule will prohibit certain transactions in semiconductors, microelectronics and artificial intelligence. It also establishes mandatory reporting requirements for transactions that are not banned outright. In the field of quantum computing, the rule is more far-reaching, banning all transactions "related to the development of quantum computers or production of any critical components required to produce a quantum computer," as well as the development of other quantum systems. Unlike the fields of AI and semiconductors, the rule does not allow for transactions that can be completed so long as they are reported to the government. The rule also announced the creation of the Office of Global Transactions within Treasury's Office of Investment Security, which will administer the Outbound Investment Security Program. Justification and opposition "Artificial intelligence, semiconductors, and quantum technologies are fundamental to the development of the next generation of military, surveillance, intelligence and certain cybersecurity applications like cutting-edge code-breaking computer systems or next generation fighter jets," Paul Rosen, assistant secretary for investment security, said in a statement. "This Final Rule takes targeted and concrete measures to ensure that U.S. investment is not exploited to advance the development of key technologies by those who may use them to threaten our national security," Rosen said. Beijing has repeatedly complained about U.S. technology policy, arguing that the U.S. is dedicated to preventing China's rise as a global power. In a press conference on Tuesday, Chinese Foreign Ministry spokesperson Lin Jian reiterated China's longstanding objections to U.S. efforts to withhold advanced technology from Chinese companies. "China deplores and rejects the U.S.'s Final Rule to curb investment in China," Lin said. "China has protested to the U.S. and will take all measures necessary to firmly defend its lawful rights and interests." Not just equipment The language of the rule frequently notes that it applies to transactions with "countries of concern," but the specific language in the text makes it plain that the targets of the rule are companies and individuals doing business in mainland China as well as the "special administrative districts" of Hong Kong and Macao. The Final Rule's ban on transactions is not limited to the physical transfer of finished goods and machinery in the specified fields. Explanatory documents released on Monday make it clear that several intangible benefits are also covered. Countries of concern "are exploiting or have the ability to exploit certain United States outbound investments, including certain intangible benefits that often accompany United States investments and that help companies succeed," an informational statement accompanying the rule said. "These intangible benefits include enhanced standing and prominence, managerial assistance, investment and talent networks, market access, and enhanced access to additional financing." Signaling to US companies The onus will be on U.S. companies to comply with the new rule, Stephen Ezell, vice president for global innovation policy at the Information Technology & Innovation Foundation, told VOA. "This is the U.S. government signaling to U.S. entities and investors that they need to think twice about making investments on the prohibited transaction side of the equation that would advance China's capabilities in these areas," Ezell said. He added that the impact of the rule on investment in Chinese technology companies would have effects far beyond any reduction in funding. "It's not just the dollars," he said. "A key target here is getting at the intangible benefits that come with those investments, such as managerial capability, talent networks." He described that loss as "very significant." Closing loopholes In an email exchange with VOA, Daniel Gonzales, a senior scientist at the RAND Corporation, explained that the purpose of the rule was, in part, to prevent U.S. investment firms from supporting Chinese firms in the development of certain kinds of technology. "These rules were put in place after many episodes where U.S. [venture capital] companies helped to transfer or nurture advanced technologies that have relevant military capabilities," Gonzales wrote. "One particular case was that of TikTok and its AI algorithms, which were developed with the help of Sequoia Capital of California." Sequoia did not break any laws in assisting TikTok, Gonzales said. But "it has since become known to U.S. authorities that TikTok does possess an AI algorithm that has a variety of applications, some of which have military implications. This new rule is intended to close this loophole." Gonzales said the U.S. government's concern with quantum computing is also born of worries about Chinese offensive capabilities. "Chinese researchers are working on developing quantum computer algorithms that can break encryption codes used by the U.S. government and the U.S. financial sector to protect private and confidential information," he wrote. "China has several startup companies working to develop more powerful quantum computers. This new rule is intended to prevent the leakage of U.S. quantum technology to China through U.S. VCs."

US finalises curbs on investments in China chip, AI tech

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.The Biden administration finalised 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.

U.S. finalizing rules to ban certain investments in AI tech in China

President Joe Biden's administration says it's finalizing rules to curb investments in AI and other tech sectors in China, Reuters reports. The rules, which were first proposed in June by the U.S. Treasury and directed by an executive order President Biden signed in August 2023, cover certain AI systems, quantum information systems, and semiconductors and microelectronics. Specifically, the rules pertain to technologies core to military and surveillance systems, like code-breaking computer systems and next-generation fighter jets. Beginning January 2, investors will be banned from funneling capital and "intangible benefits," like managerial assistance and access to investment and talent networks, to help China and other "countries of concern" develop military, intelligence, and cybersecurity capabilities. Overseen by Treasury's newly created Office of Global Transactions, the new rules contain a carve-out allowing U.S. investment in publicly traded securities. But previous executive orders bar the buying and selling of securities of certain "designated" Chinese companies.

New Rule Blocks U.S. Investors From Helping China Develop Advanced Military Tech

The U.S. Treasury Department, seeking to keep the Chinese military from gaining an edge in advanced technologies, issued a rule Monday to restrict and monitor American investments in China in artificial intelligence, computer chips and quantum computing. The finalized rule arises from an executive order issued in August 2023 by President Joe Biden. The order sought to limit the access that "countries of concern" -- specifically China including Hong Kong and Macao -- have to American dollars to fund technologies that could be used, for example, to break codes or develop next-generation fighter jets. It will take effect Jan. 2. "U.S. investments ... must not be used to help countries of concern develop their military, intelligence and cyber capabilities"' said Paul Rosen, assistant Treasury secretary for investment security. He noted the investments can mean more than just money: they can deliver "intangible benefits," including managerial help and assistance finding top talent and tapping other sources of financing. Blocking China's high-tech ambitions is one of the few issues that enjoys broad support in Washington from both Republicans and Democrats.