The Biden administration on June 21 laid out plans to restrict new American investment in critical Chinese technology industries that could be used to enhance China’s military. The U.S. Department of the Treasury issued a Notice of Proposed Rulemaking (NPRM) to implement Executive Order 14105 of August 9, 2023, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern” (the Outbound Order).

The New York Times reported that the proposed Treasury Department rules further strain economic ties with Beijing at a time when trade tensions are rising. The restrictions, expected to be finalized later in 2024, would apply to certain U.S. investments in Chinese companies that are developing semiconductors, quantum computers and artificial intelligence systems. The Biden administration said it is trying to restrict American financing from helping China develop advanced technology that could be used for weapons tracking, government intelligence and surveillance.

“This proposed rule advances our national security by preventing the many benefits certain U.S. investments provide — beyond just capital — from supporting the development of sensitive technologies in countries that may use them to threaten our national security,” said Paul Rosen, the Treasury Department’s assistant secretary for investment security.

The restrictions require investors to notify the Treasury Department about certain kinds of transactions, and some types of investments are explicitly prohibited. As part of the program, the Treasury Department has the power to force a divestment, and violations could be referred to the Justice Department for criminal prosecution.

The rules apply to equity investments, debt financing that could be converted to equity, and to joint ventures.