A more short-term effect is that US investors interested in Chinese AI startups will have to do a lot more due diligence. The Treasury Department is not setting up a new CFIUS-like government committee to review all investor submissions, and is instead asking them to do their own homework and report whether they believe a Chinese AI company will be covered.
Under the new rules, even China’s first AI model is less than 1025-flops size threshold, a US investor may still be responsible for informing the Treasury about their homework and homework, as long as their model is 10.23 flops (including all major models developed today and in the future). Essentially, that means the US government is creating its own system to monitor the entire flow of money from American investors to Chinese AI companies.
Robert A. Friedman, a global trade attorney at the law firm Holland & Knight, says: “To ensure that the transaction does not work, it will require a lot of due diligence by American investors. Although the rules were celebrated by domestic AI companies and their sponsors, they will be a hindrance to venture capitalists trying to come up with global portfolios, he said.
An Uncertain Future
Outgoing investment restrictions will come into effect on January 2, and in the meantime, the Ministry of Finance has indicated that some minor changes are on the way to further clarify the rules. The officials also said that they are making efforts to coordinate with American allies, such as the G7 countries, to introduce similar measures that will prevent Chinese AI companies from turning to VCs in Europe, Canada, or Japan for the types of investments that are not allowed in the US.
The big uncertainty now, like many parts of the US federal government, is how a second Trump presidency might change things. Danzman notes that many members of the Trump-supporting corporate community oppose the types of regulations the Treasury Department is introducing, so they may try to lobby the president to roll them back. Many large American companies, such as Tesla and Blackstone – both led by pro-Trump billionaires – have significant investments in China and could see their businesses adversely affected by the tougher restrictions.
Some experts told WIRED that they expect the new Republican administration, which is slated to include a number of China hawks like Rubio, will expand the scope of the rules. “It is possible that we will see a new executive order. Or, given a unified Republican government, maybe the expansion will happen through legislative action,” Kilcrease said. That could mean more moves targeting other Chinese brands, in fields ranging from biotechnology to batteries.
The technical policy of the Biden administration towards China has been defined, at least in principle, by the idea of ”a small yard, a high fence,” or in other words, to designate narrow areas where the US government can impose strict restrictions. The latest version of the exit investment rules is an example of what that idea looks like in action. But under Trump, Chinese companies may finally see just how big the yard can be.
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