The U.S. government will ban American capital from investing in China in cutting-edge technology sectors such as semiconductors, quantum computing, and artificial intelligence (AI) starting next year.
On the 28th (local time), the U.S. Department of the Treasury announced the "Final Rule for Implementing the Executive Order on Certain National Security Technologies and Products in Concerned Countries," which contains these provisions.
This is pursuant to Executive Order 14105, signed by President Joe Biden last August, and will take effect on January 2 next year.
The U.S. defines "concerned countries" in the final rule as China, Hong Kong, and Macau. This effectively blocks American capital investment in cutting-edge technology sectors in China.
Companies intending to invest in China’s advanced technology sectors must report their investment plans in advance, and regulatory authority lies with the U.S. Department of the Treasury.
The purpose of introducing these regulations is to prevent American capital from flowing into China’s cutting-edge technology sectors and to stop China from using advanced technology to strengthen its military capabilities.
The White House pointed out, "While cross-border investment flows and America’s open investment policy contribute to the vitality of the U.S. economy, concerned countries are abusing certain overseas investments by accelerating the development of sensitive technologies and products that undermine U.S. national security interests." It added, "The Biden-Harris administration is committed to protecting U.S. security by preventing concerned countries, namely China, from advancing critical technologies essential to military modernization."
Specifically, in the semiconductor sector, transactions involving certain electronic design automation software, specific manufacturing or advanced packaging tools, design or manufacturing of certain advanced integrated circuits, advanced packaging technologies for integrated circuits, and transactions related to supercomputers are prohibited. Transactions related to integrated circuit design, fabrication, or packaging require reporting obligations.
In the quantum computing sector, transactions involving the production of key components necessary for development or manufacturing, development or production of certain quantum sensing platforms, and development or production of certain quantum networks or quantum communication systems are prohibited.
In the AI sector, all transactions related to AI system development are prohibited.
The Treasury Department stated that violations may result in civil and criminal penalties under the International Emergency Economic Powers Act (IEEPA).
Strong backlash from China is expected accordingly. However, since the rule targets American capital, it is assessed that it will not have a significant impact on Korean companies.
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