Crackdown on U.S. Outbound Investment to China

Tweet

Jun. 27, 2024
By: Marvin E. McPherson

Both the Biden Administration and Congress has new controls for outbound investments to China at the top of mind. This is exemplified by Treasury’s Notice of Proposed Rulemaking (NPRM) on outbound investment and two new Senate bills.

The NPRM stems from Executive Order 14105, “Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern,” issued by President Biden on August 9, 2023. The NPRM would require (1) US persons to provide notification to the U.S. Treasury for certain transactions involving persons of a country of concern who are engaged in covered activities; and (2) prohibit US persons from engaging in certain transactions involving persons of a country of concern who are engaged in covered activities involving sensitive technologies and products.

The rule outlines sensitive technologies to include semiconductors and microelectronics, quantum information technologies, and artificial intelligence. The only listed country of concern to date is China.

The rule provides that a U.S. person subject to the notification requirement would be required to file a notification form with the U.S. Treasury that includes information related to the transaction such as details about the U.S. person, the covered transaction, relevant sensitive technologies and products, and the covered foreign person. The rule has not gone into effect yet, and Treasury is seeking comments from all stakeholders.

This rule is likely not going to operate in a vacuum. Two bills have been introduced in the Senate, S. 4586 and S. 4589. Neither of the bill have moved to conference or committee, yet emphasis the want to control outbound investments going to China.

The first bill, S. 4586, would prohibit the “funding of malign activities of the Chinese Communist Party through the sale of "A-Shares" on certain securities exchanges controlled by the Chinese Communist Party by prohibiting the purchase, sale, and ownership of such securities by United States investors, and for other purposes.” and S. 4589 would “prohibit index funds and registered

Stay informed about these regulatory updates for compliance in the evolving landscape. If you have any questions surrounding proposed rule or submitting comments, please contact any attorney at Barnes Richardson and Colburn.