Biden admin issues restrictions on US investments into sensitive tech tied to China

STEVEN MCDOWELL/SCIENCE PHOTO LIBRARY

The rule takes effect Jan. 2 and focuses on emerging technologies that may galvanize Chinese military advancements.

The White House and Treasury Department released a final rule Monday evening that blocks various U.S. investments into sensitive technologies that could undermine national security, particularly in relation to China’s military and intelligence capabilities.

The move targeting outbound investments, which has been in development for some time, is designed to prevent China from augmenting key technologies that directly support its military modernization and related activities.

The rule takes effect Jan. 2 of next year, focusing on semiconductor, quantum and artificial intelligence investments. While U.S. trade policies restrict the export of physical goods to adversaries involved in those tech verticals, federal laws have not fully accounted for cash flows that directly finance these sectors.

Barred chip transactions include those involving advanced semiconductor tools and technologies like electronic design software, fabrication tools, advanced integrated circuits, packaging techniques and supercomputers. In quantum, transactions related to developing quantum computers, critical quantum components, certain quantum sensing platforms and quantum communication systems are banned. 

Additionally, investments into AI systems intended for specific high-risk uses or requiring vast computational power — particularly those involving biological sequence data, like DNA — are also prohibited.

Specific prohibited cases include a U.S. investment bank securing an equity stake in an advanced semiconductor company in China, or a U.S. company purchasing land in China for a quantum computing research and development center, said a senior administration official who spoke to reporters on the condition of anonymity to preview details about the rule.

It’s not entirely clear how the move would impact U.S.-China economic relations. By targeting these areas, the rule specifically seeks to restrict China’s access to advanced technologies that could bolster its military or cyber capabilities, including espionage and computer hacking. U.S. officials maintain the action is designed to address national security concerns and not impose economic restrictions.

Chinese hackers are in U.S. investigators’ crosshairs after Beijing-tied cyberspies infiltrated the systems of major telecommunications carriers and affiliated infrastructure that facilitates court-authorized surveillance requests.

The administration unveiled a proposed framework for the rule last summer and received some 60 comments from stakeholders about developing the enforcement, the senior official said.

“This set of technologies, we believe, is core for the next generation of military, cybersecurity, surveillance and intelligence applications, providing what we believe are force-multiplier capabilities,” a different senior administration official said.

Some exemptions are available. A U.S. person may ask Treasury for an exemption if they believe it’s in the best interest of the U.S. Additionally, publicly traded securities and derivatives contracts are also allowed, among other areas.

The White House had sought input about how to craft the order since at least Fall 2022. A separate but related rule focused on preventing Americans’ sensitive data from falling into the hands of foreign adversaries is in process after being introduced in late February.

Congressional China hawks are also working to curb certain imports of Chinese-linked hardware, amid concerns they may enable Beijing to quietly burrow into sensitive critical infrastructure and siphon off data from networks.