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Biden Administration Initiates Regulation of U.S. Investments in China: Key Takeaways

President Joe Biden has issued an executive order setting the stage for the regulation of certain U.S. investments linked to China.

Credit: DepositPhotos

The order directs the U.S. Department of the Treasury to create regulations mandating notification or prohibition of specific U.S. investments in Chinese and Chinese-owned companies involving semiconductors, quantum technology, and artificial intelligence.

Here are the key takeaways from this executive action:

1. Framework for Future Regulation: The executive order establishes a framework for Treasury to develop regulations that require notification or prohibition of certain U.S. investments in China-related technologies.

Treasury will decide which investments are covered, prohibited, or subject to notification.

2. Not Yet Fully Regulated: The EO does not directly regulate investments at this time.

It delegates decision-making to Treasury, which will engage in a potentially lengthy regulatory process to determine the specifics.

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3. Policy Statement: The EO emphasizes that while the U.S. is committed to open investment, certain countries, including China, are exploiting U.S. investments in sensitive technologies.

This underscores the need for regulation.

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

5. Covered Foreign Persons: Treasury proposes to cover investments by U.S. persons in “covered foreign persons,” which include entities engaged in specified activities involving covered technologies.

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

7. Exemptions: Certain transactions, including university research collaborations, IP licensing arrangements, and bank services, would be excluded from regulation.

8. Forward-Looking: The regulations are intended to be forward-looking, not retroactive, and apply to transactions occurring after the issuance of the EO.

9. Excepted Transactions: Treasury proposes exceptions for specific types of transactions, such as those involving publicly traded securities, index funds, and venture capital funds.

However, certain conditions must be met for these exceptions to apply.

10. Covered Technologies: The covered technologies include semiconductors/microelectronics, quantum information, and artificial intelligence.

Treasury’s initial regulations will focus on these technologies involving China, with the possibility of expansion in the future.

It’s important to note that Congress may still take action regarding outbound investments, as bills have been introduced and passed in both houses.

The regulatory process will likely continue into the coming months, and the details may evolve based on public comments and potential legislative action..

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Malik is a skilled writer with a passion for news and current events. With their keen eye for detail, they provide insightful perspectives on the latest happenings. Stay informed and engaged!