Once final, the rule would bar US investors from private deals with any Chinese AI developer, while listed shares, ETFs and non-US fund stakes up to US$2 million stay exempt.
The US Department of the Treasury on October 22 proposed rules that would widen its Outbound Investment Security Program, the regime that limits American investment in Chinese technology companies, and move AI deals from the list of transactions that must be reported to the list that is banned outright. Treasury’s press release says the draft implements the Comprehensive Outbound Investment National Security (COINS) Act, passed as part of the Fiscal Year 2026 National Defense Authorization Act. It adds biotechnology to a set of covered sectors that also includes semiconductors, AI, quantum technology, high-performance computing and hypersonic systems.
The clearest change for investors in Chinese AI concerns which deals need only a filing. Treasury’s draft would prohibit covered US investment in any Chinese company that develops an AI system, ending the option of simply notifying Treasury of such deals. The proposal renames AI systems "super intelligence" or SI systems, following a September 29 executive order titled "Inaugurating the Era of Super Intelligence," according to Treasury’s fact sheet.
The start date is still open. Treasury says final regulations will come later and will set the effective date, and the law requires them within 450 days of its December 18, 2025 enactment. Until then the current rules, in force since January 2, 2025, keep applying. The 137-page notice was filed for public inspection at the Federal Register on October 23 and is scheduled for publication on October 26.
The draft extends the program to Russia, Iran, North Korea and Cuba
Treasury’s program page links to the notice and a fact sheet that defines a country of concern as China, including Hong Kong and Macau, plus Cuba, Iran, North Korea, Russia and Venezuela under the regime of Nicolás Maduro. The fact sheet says that regime no longer exists, so Venezuela does not currently meet the definition. The current program covers only China, Hong Kong and Macau.
In chips, the draft keeps existing bans and adds radiation-hardened chips, photonic chips and high-bandwidth memory to the prohibited list. Developing quantum computing algorithms or applications would become prohibited. High-bandwidth, low-latency interconnects used in supercomputing would become notifiable. Hypersonic systems and their propulsion and test facilities would be prohibited. The biotechnology section covers brain-computer interfaces, biomanufacturing equipment, bioinformatics tools and hardware or software for automated scientific discovery.
"The proposed regulations are designed to address risks that can arise when foreign adversaries try to benefit from U.S. investment in key technology sectors," said Christopher Pilkerton, Assistant Secretary of the Treasury for Investment Security. Treasury Secretary Scott Bessent said the rules would "prevent our adversaries from using U.S. investment to develop critical technologies," The Hill reported.
Public shares and index funds stay outside the rules while private deals face stricter checks
The Associated Press and The Hill both reported a US$50,000 threshold and an exclusion for stock purchases. Treasury’s fact sheet gives the detail. Securities that trade on any exchange or over-the-counter market are excepted, as are index funds, mutual funds and ETFs. A limited partner stake in a non-US fund is excepted when the US investor commits no more than US$2 million. The US$50,000 figure, counted across the preceding 12 months, exempts a deal from notification only, so a small stake in a company working on a prohibited technology would still be barred.
Several exceptions fall away when the US investor gains governance rights beyond standard minority shareholder protections. Payments on binding capital commitments made before the final rule takes effect are excepted. Notifications would be due within 30 days of closing. Investors would be judged on what they knew or could have learned through "reasonable and diligent inquiry," and penalties reach the maximums under the International Emergency Economic Powers Act, with possible forced divestment for prohibited deals.
Enforcement has already started under the current rules. In July, Treasury fined a US company US$200,000 for failing to report a US$92,500 investment by a subsidiary in a Chinese AI and robotics company, AP reported. Jason Chipman, a WilmerHale partner, told AP the new rule "will require more substantial compliance programs to manage risk."
Comments close December 7, and the final rule will set the start date
Treasury is taking comments on every part of the draft, from scope and definitions to penalties, through regulations.gov until December 7, 2026. Ryan Majerus, a former US trade official now at King & Spalding, told AP the proposal is "just the first step in a fairly long process." Craig Singleton of the Foundation for Defense of Democracies said it "sends an important signal to markets that Washington is tracking where U.S. capital is flowing."
Beijing’s response so far is general. Asked about the US plan to add biotechnology, Chinese Foreign Ministry spokesperson Mao Ning said "overstretching the concept of national security, taking discriminatory measures against specific countries, and artificially restricting trade, economic and investment activities serve no one’s interests," AP reported, without giving the date of her remarks.
The proposal follows US sanctions on MiraclePlus and four other Chinese entities over alleged theft of Google AI secrets. The next marker is the October 26 Federal Register publication, after which the comment docket will show how US funds with Chinese AI and biotech exposure argue for narrower definitions or larger exceptions before Treasury fixes the effective date.