Biden Administration Issues Highly Anticipated Executive Order on U.S. Investment in China

The Biden administration has issued a long-anticipated executive order targeting U.S. outbound investment in certain Chinese industries; however, significant steps remain before these measures are fully implemented.

On August 9, 2023, President Biden signed an executive order, "Addressing United States Investments in Certain National Security Technologies and Products in Countries of Concern" ("Outbound Investment EO"), which lays the foundation for a national security review process for certain U.S. investments abroad. Specifically, the restrictions described in the Outbound Investment EO target U.S. investments in a "country of concern," currently defined as China and its special administrative regions of Hong Kong and Macau, or involving a "covered foreign person," currently defined as "a person of a country of concern who or that is engaged in activities … involving one or more covered national security technologies and products."

The Outbound Investment EO directs the U.S. Department of the Treasury ("Treasury"), in coordination with other agencies, to draft regulations that: (i) prohibit certain transactions involving covered foreign persons; and (ii) require notification of certain other transactions involving covered foreign persons. The Outbound Investment EO focuses on "covered national security technologies and products," defined as "sensitive technologies and products in the semiconductors and microelectronics, quantum information technologies, and artificial intelligence sectors that are critical for the military, intelligence, surveillance, or cyber-enabled capabilities of a country of concern," as determined by Treasury in consultation with the Department of Commerce and other agencies. The structure of the Outbound Investment EO and choice of agencies suggest that the rules may draw on precedents from the Committee on Foreign Investment in the United States, sanctions, and export controls.

Treasury issued an advance notice of proposed rulemaking ("ANPRM") shortly after the Outbound Investment EO was released. The ANPRM does not itself implement the Outbound Investment EO but rather sets forth a proposed approach and poses questions for industry comment. The ANPRM notes specific types of investments that Treasury intends to identify as a notifiable or prohibited investment where such investment relates to "covered national security technologies and products," including a direct or indirect (i) acquisition of an equity interest or contingent equity interest in a covered foreign person; (ii) provision of debt financing to a covered foreign person where such debt financing is convertible to an equity interest; (iii) greenfield investment that could develop into a covered foreign person; and (iv) establishment of joint ventures with a covered foreign person or that could result in a covered foreign person. The ANPRM indicates that Treasury is considering a 30-day, post-closing deadline for submitting a required notification. 

The ANPRM solicits public comment through September 28, 2023, with a final rule coming into effect after that date. Companies whose operations may be affected by the screening process should monitor, and consider participating in, the comment process. 

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