US proposes rules to stop Americans from investing in Chinese technology for military purposes

WASHINGTON (AP) — The Treasury Department on Friday unveiled a proposed rule that would limit and monitor U.S. investments in China in artificial intelligence, computer chips and quantum computing.

The proposed rule stems from President Joe Biden’s August 2023 executive order regarding access for “countries of concern” to U.S. dollars financing advanced technologies that the U.S. government says will strengthen their military, intelligence, surveillance and cyber capabilities. The regulation identifies China, Hong Kong and Macau as countries of concern.

The Biden administration has sought to impede the development of technologies in China, the world’s second-largest economy, that could give it a military advantage or enable it to dominate emerging sectors such as electric vehicles.

In addition to the proposed rule, Democrat Biden also imposed a stiff tariff on Chinese electric vehicles, which has political ramifications as both the president and Republican Donald Trump try to show voters who can best stand up to China, a geopolitical rival and major trading partner.

The proposed rule outlines the required information that U.S. citizens and permanent residents must provide when transacting in this area, as well as what may be considered a violation of the restrictions.

Specifically, it would prohibit U.S. investors from financing artificial intelligence systems in China that could be used for weapons targeting, combat and location tracking, among other military applications, according to a senior Treasury official who provided the rule to reporters on the condition of anonymity.

J. Philip Ludvigson, a partner at King & Spalding and former Treasury investment security officer, said that “businesses and investors now have a much better understanding of what will be expected of them” under the new outbound investment program. “These additional details are particularly important because the private sector will have many of the due diligence and compliance obligations associated with making new investments,” he said.

Craig Allen, president of the US-China Business Council, a nonprofit group of US companies doing business in China, said his organization “supports the Biden administration’s efforts to protect US national security while ensuring robust trade with China to the benefit of American Companies, Workers and Our Economy.”

The Ministry of Treasury expects comments on the proposal by August 4, 2024, and after that date it is expected to issue a final regulation.

Biden administration officials, including Treasury Secretary Janet Yellen, have insisted they are not interested in “decoupling” China from China – but tensions between the two nations have increased in recent years.

After the U.S. military shot down a suspected Chinese spy balloon off the coast of the Carolinas in February 2023 that was passing through sensitive military installations in North America, China threatened repercussions.

Since then, there have been regular incidents between the two nations on national security grounds.

For example, Biden in May issued an executive order preventing a Chinese-backed cryptocurrency mining company from owning land near a nuclear missile base in Wyoming, calling the base’s proximity a “national security threat.”