New Title: Biden Administration Takes Steps to Regulate U.S. Investments in China: Key Points to Consider

President Joe Biden has recently signed an executive order that paves the way for the regulation of specific U.S. investments connected to China. The order instructs the U.S. Department of the Treasury to develop regulations that will require notification or prohibition of certain U.S. investments in Chinese and Chinese-owned companies involved in semiconductors, quantum technology, and artificial intelligence. Here are the main highlights of this executive action:

1. Establishment of a Regulatory Framework: The executive order establishes a framework for the Treasury to create regulations that will mandate the notification or prohibition of certain U.S. investments in China-related technologies. The Treasury will have the authority to determine which investments should be covered, prohibited, or subject to notification.

2. Current Lack of Regulation: At present, the executive order does not directly regulate investments. It delegates the decision-making process to the Treasury, which will engage in a potentially lengthy process to determine the specific regulations.

3. Policy Statement: The executive order emphasizes that although the U.S. is committed to open investment, certain countries, including China, are taking advantage of U.S. investments in sensitive technologies. This highlights the necessity for regulation.

4. Issuance of ANPRM: The Treasury has released an Advance Notice of Proposed Rulemaking (ANPRM) that outlines crucial details of the forthcoming regulations. The ANPRM is open for public comment until September 28, 2023.

5. Inclusion of Covered Foreign Persons: The Treasury proposes to include investments by U.S. individuals in “covered foreign persons,” which comprises entities engaged in certain activities involving covered technologies.

6. Scope of Covered Investments: The Treasury suggests that direct or indirect investments in covered foreign persons, such as equity interests, debt financing convertible to equity, greenfield investments, and joint ventures, will be subject to regulation.

7. Exemptions: Some transactions, such as university research collaborations, IP licensing arrangements, and bank services, will be excluded from regulation.

8. Forward-Looking Approach: The regulations will apply to transactions occurring after the issuance of the executive order and are intended to be forward-looking rather than retroactive.

9. Exceptions for Specific Transactions: The Treasury proposes exceptions for specific types of transactions, including publicly traded securities, index funds, and venture capital funds. However, these exceptions will only apply if certain conditions are met.

10. Covered Technologies: The covered technologies include semiconductors/microelectronics, quantum information, and artificial intelligence. Initially, the Treasury’s regulations will focus on these technologies specifically relating to China, with the potential for expansion in the future.

It is important to note that Congress may still take action regarding outbound investments, as relevant bills have been introduced and passed in both the House and the Senate. The regulatory process is likely to continue in the coming months, and the details may evolve based on public feedback and possible legislative actions.