Revised regulations restricting investments in Chinese companies developing semiconductors and microelectronics, quantum information technologies, and artificial intelligence systems are taking shape and could soon be in effect.

The U.S. Department of Treasury published a Notice of Proposed Rulemaking (the NPRM) on July 5, 2024, proposing revised regulations to implement President Biden’s Executive Order No. 14105. Staff requested comments by August 4, 2024, meaning Treasury will likely finalize the regulations within a brief period now that the deadline has passed.

The regulations will create the first U.S. outbound foreign direct investment regime regulating investment by “United States Persons” into certain technologies in certain countries.

Specifically, the Executive Order and proposed regulations focus on the People’s Republic of China and the territories of Hong Kong and Macao (called Countries of Concern). They also target the development of semiconductors and microelectronics, quantum information technologies, and artificial intelligence systems, which the U.S. Government has identified as sensitive areas that have national security importance because they are key to the nation’s future technological competitive superiority.

Certain investments would be prohibited, and others would require an electronic filing within 30 days after the transaction.

No governmental approval process is established, so investors must make their own determination of whether their investments are restricted under the regulations.

The proposed regulations impose certain due diligence requirements on investors.

Companies and private equity funds will need to implement procedures, policies and safeguards and to revise their investment documentations if they intend to invest in these covered technologies in a Country of Concern.

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