The United States is preparing to implement new rules aimed at limiting American investment in artificial intelligence (AI) companies in China. The rules, currently undergoing final review by the Office of Management and Budget (OMB), are expected to be announced soon, marking a significant step forward in the technological rivalry between the United States and China.

These restrictions stem from an executive order signed by President Joe Biden in August 2023, to prevent American expertise from contributing to China’s military advance.

Upcoming regulations will focus on limiting overseas investment in sectors considered highly sensitive, such as AI, semiconductors, microelectronics and quantum computing.

In addition to restricting certain transactions, the rules will require U.S. investors to notify the Treasury Department of their investments in these areas. Officials expect the final version of the regulations to provide more clarity on what will fall under these restrictions, particularly regarding AI use cases and investors’ obligations.

Laura Black, a former Treasury official and current attorney at Akin Gump in Washington, noted that the timeline suggests the rules could be released before the Nov. 5 U.S. presidential election.

She explained that regulations of this type typically provide at least 30 days before taking effect, giving businesses time to adapt.

The Treasury Department initially shared a draft version of the rules in June, seeking public comment.

These proposed regulations placed the burden on American businesses and individuals to determine whether their transactions would be restricted. They also highlighted specific scenarios in which investments in AI would be prohibited, including projects involving certain levels of computing power or linked to military applications.

However, certain exceptions were included in the proposals, such as investments through mutual funds, index funds or certain types of syndicated debt financing. Limited partnerships and other financial structures should receive additional clarification in the final version.

The new restrictions reflect growing U.S. concerns about China’s advances in advanced technologies and efforts to limit flows of capital and knowledge that could bolster its military capabilities.

As tensions between the two countries continue to ease, the move signals a broader strategy by the United States to protect its technological edge while strengthening controls on critical industries.

With the rules expected to be released in the coming days, attention will soon turn to how these new restrictions will be enforced and how they will impact investment flows between the United States and China.