US to Soon Impose Restrictions on AI Investments in China

The U.S. government is nearing the release of final rules aimed at restricting certain investments in artificial intelligence (AI) in China. These regulations target outbound investments specifically in sectors like AI, semiconductors, microelectronics, and quantum computing, and are expected to be unveiled within the next week, according to a recent government posting.

The new rules stem from an executive order signed by President Joe Biden in August 2023, which is designed to prevent American technological advancements from bolstering China's military capabilities. Under these regulations, U.S. investors will be required to notify the Treasury Department about certain investments in sensitive technologies, particularly those related to AI.

Currently, the final rules are undergoing review at the Office of Management and Budget (OMB). Historically, such reviews have indicated that new regulations are likely to be released imminently. Experts suggest that the timing of the announcement is strategically aligned with the upcoming U.S. presidential election on November 5, as former Treasury official Laura Black pointed out. Black, who is now a lawyer at Akin Gump in Washington, mentioned, “It looks to me like they're trying to publish this before the election.” She noted that the Treasury typically provides at least a 30-day window before new regulations take effect.

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Earlier in June, the Treasury Department published proposed rules that included various exceptions, inviting public comments on the draft. The responsibility for identifying restricted transactions would fall on U.S. individuals and companies. The proposed regulations outlined specific bans on AI transactions for certain applications and set limits based on the amount of computing power used in training AI systems.

Additionally, the rules stipulated that transactions related to the development of AI systems or semiconductors not explicitly prohibited would require notification to the Treasury.

Among the exceptions proposed were publicly traded securities, such as index funds and mutual funds, certain limited partnership investments, and some syndicated debt financing options.

While the Treasury Department has yet to comment publicly on the forthcoming rules, Black anticipates that the final regulations will provide clearer guidelines regarding the scope of covered AI investments and the criteria for limited partnerships.

As the U.S. prepares to implement these restrictions, the move reflects broader concerns over national security and the potential implications of U.S. technology supporting adversarial military capabilities. This regulatory framework aims to safeguard American innovation while navigating the complexities of international investment in an increasingly competitive technological landscape.

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