A draft rule issued Thursday would bar U.S. investors from backing Chinese companies working on any advanced A.I. system and on a range of biotechnologies, a change aimed squarely at the venture capital and life sciences industries concentrated in the Bay Area.
The Treasury Department on Thursday proposed a broad expansion of the federal rules that restrict Americans from investing in Chinese technology companies, adding biotechnology, hypersonic weapons and high-performance computing to the list of sensitive sectors and tightening the limits on artificial intelligence.
The proposed rule carries out the Comprehensive Outbound Investment National Security Act, known as the COINS Act, which was enacted in December as part of the annual defense authorization bill. It would replace a narrower program, created by executive order under President Joseph R. Biden Jr. and in force since January 2025, with one written into statute, and it would extend the restrictions beyond China, including Hong Kong and Macau, to Cuba, Iran, North Korea and Russia.
“The proposed regulations would strengthen the existing Outbound Investment Security Program to prevent our adversaries from using U.S. investment to develop critical technologies that threaten U.S. national security,” Treasury Secretary Scott Bessent said in a statement. The department said the rule was also meant to give investors “clarity” and preserve “an open investment environment.”
The public has until Dec. 7 to comment. The restrictions would take effect only after Treasury issues a final rule, on a date it has not set.
What would change
The most consequential change for Silicon Valley concerns artificial intelligence. Under the current rules, American investors are barred from backing Chinese developers of certain powerful A.I. models and must notify Treasury of investments in others. The draft would prohibit U.S. investment in any company in a country of concern that develops what the rule calls a “super intelligence system,” eliminating the notification tier, according to a Treasury fact sheet. The terminology follows a Sept. 29 executive order directing agencies to use “super intelligence” in place of “artificial intelligence” in certain documents.
The proposal would also extend the semiconductor prohibitions to radiation-hardened chips, photonic chips and high-bandwidth memory, the specialized memory that sits alongside A.I. processors, and would bar investment in Chinese companies developing quantum computing algorithms and applications.
Biotechnology is new. Congress listed five technology areas in the law but allowed the Treasury secretary to add others, and Mr. Bessent added biotech. The draft would prohibit U.S. investment in covered foreign companies working on certain bio-derived compounds, brain-computer interfaces, biomanufacturing equipment and facilities, tools for biological design and sequencing, bioinformatics, and hardware or software for automated scientific discovery.
The rule covers equity stakes, certain convertible debt, joint ventures, greenfield projects and limited-partner commitments to non-U.S. funds. It exempts publicly traded securities, index and mutual funds, and limited-partner investments of $2 million or less. Ordinary licensing and procurement contracts would generally fall outside the rule unless they involve the transfer of technology or technical know-how, the fact sheet said.
Treasury said it would not publish a list of covered Chinese companies. Investors would instead be expected to conduct “a reasonable and diligent inquiry,” and could be found to have known the relevant facts if they could have learned them that way. Violations could bring civil penalties up to the maximum allowed under the International Emergency Economic Powers Act, and Treasury could order divestment.
The Bay Area stake
The program’s reach falls heavily on Northern California, home to many of the country’s largest venture firms and one of its densest clusters of biotech companies, from South San Francisco to the East Bay.
Treasury’s own economic analysis suggests the number of affected deals is modest. Using PitchBook data, the department estimated that about 230 American investors made roughly 300 investments in the covered sectors in countries of concern from about 2023 through 2025. It then doubled those figures to account for undercounting, assuming about 150 investors and 200 transactions a year.
But the deals that have drawn scrutiny have often involved Bay Area money. A 2024 report by the House Select Committee on the Chinese Communist Party, titled “The CCP’s Investors,” found that five U.S. venture firms, among them Sequoia Capital’s former China arm and GGV Capital, which had offices in Menlo Park and Shanghai, had invested at least $3 billion in Chinese A.I. and semiconductor companies. Last year, Treasury examined the Silicon Valley firm Benchmark’s investment in the Chinese-founded A.I. start-up Manus under the existing rules, Semafor and TechCrunch reported. Benchmark’s lawyers argued that the deal was not covered, according to those reports, and no penalty has been announced.
The new biotech category raises different questions for the region’s life sciences companies. Because the draft generally excludes licensing contracts, a deal in which an American drugmaker licenses a drug candidate from a Chinese developer would not appear to be covered on its face; an equity stake in, or joint venture with, a Chinese biotech working in a listed area could be.
Diplomacy around the rule
The proposal arrives at a delicate moment. President Trump and Xi Jinping, China’s leader, are expected to meet in Shenzhen next month at the Asia-Pacific Economic Cooperation summit, and negotiators are working on investment arrangements ahead of that meeting, The South China Morning Post reported, according to a summary by the trade publication Forwarder News. The current tariff truce runs to Jan. 10.
For California investors and founders, the practical questions are now in the comment record: how Treasury will define the new categories, whether the “super intelligence” ban captures companies that build applications on others’ models, and how much diligence is enough. Treasury has asked for comment on all of it.
Nasrin Haidari covers foreign affairs and geopolitics, including diplomacy, trade disputes and conflicts, and their ties to California and the Pacific. More from Nasrin Haidari
