The more certain short-term effect is that US investors still interested in Chinese AI startups will have to do a lot more due diligence. The Treasury Department is not setting up a new government committee like CFIUS to review every transaction submitted by investors, and is instead asking them to do their homework and report back on whether they believe it. That a Chinese AI company will be covered.
Under the new rules, even if a Chinese startup’s AI model is smaller than 1025-Flop Size Limit A US investor may still have an obligation to report his transactions and homework to the Treasury Department, as long as his model is at least 1023 Flops (includes basically all large scale models produced today and in the future). In effect, this means the US government is building its own system to monitor the overall flow of money from US investors to Chinese companies working on AI.
Robert A. Friedman, an international trade attorney at the law firm Holland & Knight, says, “Confirming that a transaction is outside the scope requires significant due diligence on the part of U.S. investors. It will happen.” He says that while the rules have been celebrated by domestic AI companies and their supporters, they will be a hurdle for venture capitalists with international portfolios.
An uncertain future
Foreign investment restrictions are set to come into force on January 2, and in the meantime, the finance department has indicated that some minor changes are still in the works to further clarify the rules. Officials also said they were working to coordinate with U.S. allies, such as the G7 countries, to introduce similar measures that would ban Chinese AI companies from investing in the U.S. in Europe, Canada or Japan. Will stop turning to VCs.
As with much of the US federal government, the biggest uncertainty now is how a second Trump presidency might change things. Danzman noted that many members of the venture capital community who supported Trump are opposed to regulations introduced by the Treasury Department, so they may try to lobby the president to allow them. be withdrawn. Several major U.S. companies, such as Tesla and Blackstone — both led by pro-Trump billionaires — are investing significantly in China and could see their businesses negatively affected by tougher restrictions.
Other Wired experts expected the new Republican administration, which would include a number of China hawks like Rubio, to expand the scope of the rules. “It’s possible that we could see a new executive order. Or, given a unified Republican government, maybe the expansion will come through legislation,” says Kilcrease. That could mean more initiatives targeting other types of Chinese startups in fields ranging from biotechnology to batteries.
The Biden administration’s tech policy toward China has been defined, at least in principle, by the idea of a “small yard, high fence,” or, in other words, delineating relatively narrow areas where the U.S. government can impose very strong sanctions. is The latest version of the Outbound Investment Rules is an example of what this idea looks like in action. But under Trump, Chinese companies may see just how big the yard can actually be.
