Treasury Proposes Outbound Investment Rules Targeting China Tech Sectors
Treasury's proposed rule under EO 14105 would require notification—and in some cases prohibit—certain US investments in PRC-linked semiconductors, quantum, and AI entities, with comments due August 4, 2024.
On June 21, 2024, Treasury issued a long-awaited notice of proposed rulemaking implementing Executive Order 14105, creating the Outbound Investment Security Program. The proposed rule applies to covered transactions by US persons involving covered foreign persons in the PRC (including Hong Kong and Macau) engaged in three sensitive-technology categories: semiconductors and microelectronics, quantum information technologies, and artificial intelligence. Triggered transactions include equity acquisitions, convertible or subordinated debt financing, greenfield investments, and certain joint ventures, plus indirect investments through entities more than 50 percent owned by a covered foreign person. Some transactions require notice to Treasury; others in subsectors deemed most sensitive—particularly certain advanced semiconductor and AI work—are outright prohibited. Sophisticated counsel and clients should map exposure, prepare comment letters, model fund and JV structures, and update CFIUS-style diligence for outbound China-tech exposure. Watch for the final rule, potential grandfathering, and any OFAC or BIS interactions affecting cross-border deal flow.