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US Pushes for Tougher Controls on Investments in Chinese Semiconductors

Daniel Kim Views  

The US government has proposed a new rule that essentially bans Americans from investing in Chinese companies in the advanced technology sector, such as artificial intelligence (AI). This move aims to prevent China from using American investment as a stepping stone to advance its high-tech capabilities, which could potentially be used to expand its military power.

On the 21st, the US Treasury Department released the Notice of Proposed Rulemaking (NPRM) to implement the Executive Order on Addressing the Threat from Securities Investments that Finance Certain Companies of the People’s Republic of China. President Joe Biden directed the Treasury Department to create detailed rules in August last year, identifying China, Hong Kong, and Macao as countries of concern.

The Treasury Department said, “This proposed rule advances our national security by preventing the many benefits certain US investments provide—beyond just capital—from supporting the development of sensitive technologies in countries that may use them to threaten our national security.”

In the NPRM, the Treasury Department reiterated that the sectors subject to the investment ban or pre-notification requirements for US citizens and permanent residents include semiconductors and microelectronics, quantum information technology, and AI systems. The rule applies to equity acquisitions, convertible bond financing, joint ventures, and greenfield investments (establishing production facilities or corporations in the investment country). People violating these rules could face civil penalties and be referred to the Department of Justice for criminal prosecution. However, certain transactions, such as investments in publicly traded companies or funds of a certain size, are exempt.

Some argue that this move completes the US’s policies to restrain China. The US government has taken steps to restrict incoming and outgoing investments related to China, in addition to export controls. US Treasury Secretary Janet Yellen stated that the investment restrictions will be narrowly focused and complement existing export controls.

The Treasury Department has opened the floor for detailed opinions on the rule until August 4th. However, it has not specified a clear timeline for implementing the foreign investment restrictions. During a briefing, a senior Treasury Department official emphasized the priority to prevent China from developing AI applications capable of large-scale surveillance, including target setting and location tracking in military operations.

Bloomberg reported that this rule highlights the US government’s attention to AI.

Daniel Kim
content@viewusglobal.com

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