The rule is the latest in a series of regulations targeting strategic technologies.
The Treasury Department on Monday finalized a rule that would prohibit Americans from making certain investments in China-based companies that work on semiconductors, AI systems, or quantum information technology.
The rule goes into effect on January 2, 2025, and includes new export controls on quantum computers that went into effect in September and export controls on certain quantum research institutes in China that went into effect in May. This is based on other regulations imposed by the government.
The rule is currently limited to China (including Hong Kong and Macau), but the ministry notes that more countries may be added in the future. This applies in particular to transactions involving Chinese nationals who are not U.S. citizens or permanent residents, entities located in China, or entities majority-owned by Chinese nationals. Transactions subject to this rule include joint ventures, greenfield investments, certain forms of debt financing, and equity acquisitions. Examples of activities exempt from this rule include investments in publicly traded securities and stock-based compensation. The department’s press release emphasized that the rule is intended to address national security threats with limited impact on trade and commerce.
This rule prohibits transactions related to the development of quantum computers, networks, and sensing platforms, particularly for entities that:
Develop quantum computers or manufacture critical components needed to build quantum computers, such as dilution refrigerators and two-stage pulse tube refrigerators. Develop or manufacture quantum sensing platforms designed for or intended for relevant foreign nationals. used for military, government intelligence, or mass surveillance end uses; develops or manufactures quantum networks or quantum communications systems designed or intended for use by relevant covered foreign nationals; Uses: Networking to scale up the capabilities of quantum computers, such as for the purpose of breaking or compromising encryption. Secure communications such as quantum key distribution. or other applications with military, government intelligence, or mass surveillance end uses.
For some permitted transactions related to the design or manufacture of integrated circuits and certain AI technologies, this rule requires U.S. participants to notify the Department within 30 days after the transaction occurs. It’s wanted. There are no similar notification provisions specific to quantum technology.
Asked in an interview how the rule could affect the quantum industry, Celia Merzbacher, executive director of the Quantum Economy Development Consortium, said in an interview that U.S. companies may see the rule as a helpful step. He said he could imagine thinking things like, “Uncle Sam, thank you for putting this down.” Investing in overseas competitors. ”
However, Merzbacher added that U.S. investment in quantum technology businesses in China is already quite limited. Therefore, the main effect of this rule is to reinforce the feeling that investing in China is risky. “Anything that increases risk is negative for investors,” Merzbacher said.
In the course of the draft rule, the Treasury Department rejected requests to exempt quantum computers from medical or geological uses, stating that the development of such technology would still be “unprecedented for quantum computing related to cryptography, among other uses.” “It is likely to contribute to the country’s ability to develop computers.” Significant national security implications. ”
The rule is the final step in implementing President Joe Biden’s 2023 executive order. Meanwhile, some members of Congress have long pushed to enact such investment limits into law, and their exact scope is hotly debated.
House Chinese Communist Party Committee Chairman John Moolener (R-Mich.) praised the rule in a press release, calling it a “strong but long-awaited step.” “Congress should use these rules to address a wide range of technologies and transactions that threaten national security,” he added.
Sen. Bob Casey (D-PA) also praised the rule, calling it a “good start” and adding to the Foreign Investment Transparency Act, which he co-sponsored with Sen. John Cornyn (R-TX). They argued that it should be followed up by passage. and Dan Sullivan (R-Alaska). Senators have proposed incorporating the bill into the latest National Defense Authorization Act, which Congress aims to pass by the end of the year.
House Financial Services Committee Chairman Patrick McHenry (R-North Carolina) said he appreciated the rule’s narrow focus and urged Congress to be cautious in expanding it. “We remain skeptical of a sectoral approach to regulating foreign investment,” Henry said. “U.S. foreign investment to acquire Chinese companies has overwhelming bipartisan support, as evidenced by recent Congressional action to take control of TikTok from ByteDance.” suggested resorting to sanctions rather than investment restrictions to avoid unintentionally endorsing President Xi’s crackdown on Western influence in China.
The various views on foreign investment restrictions were summarized in a report released in August by the Congressional Research Service. “While some member states support more restrictions than[Biden’s 2023 executive order]there are concerns about the scope of the new rules and whether they will discourage investment in the U.S. market or whether the U.S. Some members have expressed concerns about whether this could harm competitiveness.” Other technology areas that lawmakers are eyeing for foreign investment limits include hypersonics, satellite-based communications, networked laser scanning systems and high-capacity batteries.
