The Treasury Department on Monday prohibited U.S.-based individuals and companies from investing in the development of a variety of advanced technologies in China, thereby blocking the Chinese government’s access to cutting-edge expertise and equipment. We have finalized new regulations aimed at this.
The rule implements an executive order signed by President Joe Biden in 2023 and focuses specifically on advanced semiconductors and microelectronics and the equipment used to make them, technologies used in quantum computing, and artificial intelligence systems. is guessing.
When it takes effect on January 2, the rule will ban certain transactions related to semiconductors, microelectronics and artificial intelligence. It also establishes reporting requirements for transactions that are not completely prohibited.
In the field of quantum computing, this rule is broader and applies to all transactions “related to the development of quantum computers or the manufacture of critical components necessary for the manufacture of quantum computers,” as well as the development of other quantum systems. prohibited. Unlike in the fields of AI and semiconductors, there are no rules that allow a transaction to be completed once a notification is submitted to the government.
The rule also announced the creation of the Office of International Trade within the Treasury Department’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 next-generation military, surveillance, intelligence, and certain cybersecurity applications such as cutting-edge code-breaking computer systems and next-generation fighter jets,” said Assistant Secretary Paul Rosen. says. In a statement, he spoke about the safety of investments.
“This final rule takes targeted, concrete steps to ensure that U.S. investments are not misused to facilitate the development of key technologies by those who may use them to threaten national security. “We are taking steps,” Rosen said.
Beijing has repeatedly complained about U.S. technology policy, insisting that the U.S. is dedicated to preventing China from emerging as a world power. At a press conference Tuesday, Chinese Foreign Ministry Spokesman Lin Jian reiterated China’s longstanding opposition to U.S. efforts to withhold advanced technology from Chinese companies.
“China deplores and rejects the U.S. final rule to curb investment in China,” Lin said. “China will take all necessary measures to protest against the United States and resolutely protect its legitimate rights and interests.”
Not just equipment
Although the text of the regulations frequently states that they apply to transactions with “countries of concern,” the specific language of the text indicates that the regulations target companies and individuals doing business in mainland China. It is clear that Japan is a “special country.” Administrative regions of Hong Kong and Macau.
The final rule’s prohibitions on transactions are not limited to physical transfers of finished goods or machinery in specific sectors. The explanatory document published on Monday reveals that some intangible benefits are also covered.
The information statement accompanying the rule states that countries of concern are “abusing certain foreign investments from the United States, including certain intangible benefits that often accompany investments in the United States and that help companies succeed. , or have the ability to misuse it.” “These intangible benefits include increased status and visibility, management support, investment and talent networks, market access, and enhanced access to additional financing.”
Notice to U.S. companies
Stephen Ezell, vice president of global innovation policy at the Information Technology and Innovation Foundation, told VOA that the onus is on U.S. companies to comply with the new rules.
“This is a signal to U.S. companies and investors that the U.S. government needs to think twice about investing in the prohibited transaction side of the equation, which would enhance China’s capabilities in these areas,” Ezell said. said.
He added that the impact of this rule on investment in Chinese technology companies will go far beyond funding cuts.
“It’s not just the dollar,” he says. “The key goal here is to capture the intangible benefits that come with the investment, such as managerial capabilities and talent networks.” He called the losses “very significant.”
close the loophole
Daniel Gonzalez, a senior scientist at the Rand Corporation, said in an email exchange with VOA that part of the purpose of the rule is to prevent U.S. investment firms from assisting Chinese companies in developing certain types of technology. He explained that it is to prevent.
“These rules were enacted after numerous episodes in which U.S. (venture capital) firms helped transfer and cultivate advanced technologies with relevant military capabilities,” Gonzalez wrote. “One particular case was TikTok and its AI algorithm, which was developed with support from California Sequoia Capital.”
Gonzalez said Sequoia did not violate any laws in supporting TikTok. However, “it has since become known to U.S. authorities that TikTok does indeed possess AI algorithms that can be applied to a variety of applications, some of which have military implications. This new rule… , aims to close this loophole.”
Gonzalez said the U.S. government’s concerns about quantum computing also stem from concerns about China’s offensive capabilities.
“Chinese researchers are working to develop quantum computer algorithms that can crack cryptographic codes used by the U.S. government and the U.S. financial sector to protect personal and sensitive information,” he wrote. . “China has several startups working on developing more powerful quantum computers. This new rule aims to prevent U.S. quantum technology from leaking to China through U.S. venture capital. .”
