Treasury Proposes Ban on US Investment in Chinese AI, Chip and Biotech Firms

The U.S. Treasury Department on October 22 proposed rules that would bar Americans from investing in Chinese companies developing advanced AI, cutting-edge chips, quantum technology, hypersonic weapons and parts of biotechnology. The draft also widens the program beyond China to Cuba, Iran, North Korea and Russia, and the public has until December 7, 2026 to comment.

The proposal turns a 2023 executive order into a fuller program backed by a law Congress passed last December. For venture funds, private equity firms and drugmakers, it changes which deals are allowed, which must be reported, and how much checking is needed before signing.

Key facts at a glance

• What: A Notice of Proposed Rulemaking (a draft regulation open for public comment) implementing the Comprehensive Outbound Investment National Security (COINS) Act, published by Treasury on October 22, 2026.
• New sectors: High-performance computing and supercomputing, hypersonic systems and biotechnology join semiconductors, AI and quantum, according to Treasury's fact sheet.
• Countries: China (including Hong Kong and Macau), Cuba, Iran, North Korea and Russia. Venezuela is named in the law, but Treasury says it no longer qualifies.
• Who is exempt: Ordinary purchases of publicly traded stocks, mutual funds and ETFs, plus deals under $50,000 a year (for the notification rule only).
• Deadline: Comments are due December 7, 2026. The rules take effect only after a final version is issued.

How we got here

Washington first moved on outbound investment on August 9, 2023, when an executive order told Treasury to restrict some U.S. investments in Chinese semiconductors, quantum and AI. Treasury finalised those rules on October 28, 2024, and they took effect on January 2, 2025, according to its program page.

Congress then wrote the approach into law. The COINS Act was enacted on December 18, 2025, as part of the Fiscal Year 2026 National Defense Authorization Act, the annual defence spending bill. It gave Treasury statutory power to require notifications for some deals and ban others, and to add technology sectors beyond the five named in the law.

The existing program has already produced real filings. In roughly 21 months of operation, Treasury says it received about 100 notifications of investments in the chip and AI industries from venture capital firms, asset managers, investment banks and individual investors, according to the proposed rule.

timeline
    title US outbound investment rules
    Aug 9 2023 : Executive order on China tech investment
    Oct 28 2024 : Treasury issues final rule
    Jan 2 2025 : First rules take effect
    Dec 18 2025 : COINS Act enacted in defence bill
    Oct 22 2026 : Treasury proposes COINS Act rule
    Dec 7 2026 : Public comment deadline

Sources: U.S. Treasury program page, Treasury fact sheet.

What the proposed rule would ban

The draft splits technology into two buckets. A prohibited technology means U.S. persons cannot invest at all. A notifiable technology means the deal can go ahead but must be reported to Treasury within 30 days of closing.

The biggest change in AI is a blanket ban on investing in any company in a country of concern that develops an AI system. Under the current program, some of those deals only needed to be reported. The draft calls these "super intelligence systems", following a September 29, 2026 executive order that told agencies to use that term in place of "artificial intelligence" in certain documents, the fact sheet explains.

Other prohibitions are expanded:

• Chips: The existing ban on investing in chip design software, fabrication equipment and advanced chips stays. It would now also cover radiation-hardened chips, photonic chips and high-bandwidth memory, the fast memory used alongside AI processors.
• Quantum: The ban on quantum computers, sensors and networks would extend to developing algorithms and applications for quantum computing.
• Supercomputing: The supercomputer ban remains, and a new notification rule would apply to high-bandwidth, low-latency interconnects that link processors together.
• Hypersonics: A new ban covers hypersonic systems, propulsion such as ramjets and scramjets, heat-resistant materials and test facilities.

Source: U.S. Treasury fact sheet and FAQs.

Biotech is the surprise addition

The COINS Act itself names five sectors and does not list biotechnology. Treasury used its power to add sectors, saying in its press release that "the Secretary has added biotechnology to the proposed regulations."

The biotech ban would reach bio-derived compounds, brain-computer interfaces, biomanufacturing equipment, sequencing and biological design tools, bioinformatics software and hardware or software for automated scientific discovery. Fierce Biotech reported that the draft's definition of "pharmaceutical compounds" spans small molecules, vaccines, blood products, cell and gene therapies and monoclonal antibodies.

There is a notable gap in the net. Standard licensing deals, where a Western drugmaker pays upfront fees, milestones and royalties for rights to a Chinese drug, are not equity investments and appear to fall outside the rule, Fierce Biotech reported. That covers deals such as Bristol Myers Squibb's potential $15.2 billion agreement with Hengrui Pharma on 13 early-stage programmes.

Deals that include an ownership stake are a different story. Fierce Biotech pointed to Pfizer's licensing of an antibody from 3SBio, which came with a $100 million equity investment in the Chinese company. That structure would be prohibited under the proposal. Treasury is also asking for comments on whether "pharmaceutical compounds" should be "more precisely scoped to focus on advanced or frontier technologies."

What stays allowed, and how compliance would work

Treasury stresses that the program is not a general ban on investing in China. Its FAQ lists several excepted transactions:

• Shares that trade on any stock exchange or over the counter.
• Index funds, mutual funds and exchange-traded funds.
• Limited partner stakes in non-U.S. funds where the commitment is $2 million or less, or where the fund contractually promises not to make covered deals.
• Stock or options received as pay for a job, bank lending, payment processing and underwriting.
• Deals completed before December 18, 2025, although the older rules may still apply to some of them.

There is no government screening queue. The investor must decide whether a deal is banned, notifiable or outside the rule, and must carry out a "reasonable and diligent inquiry" to do so. Treasury says it will not publish a list of covered Chinese companies for now. Instead, it proposes a process to request non-binding feedback on a real, specific deal, and a way for anyone to submit confidential tips about a foreign company.

Violations could draw civil fines up to the maximum under the International Emergency Economic Powers Act, and Treasury could force a sale of a prohibited investment. Voluntary self-disclosure would be taken into account.

Treasury estimates the rule would generate about 200 covered transactions a year and total direct compliance costs of $2.77 million to $5.86 million annually, roughly 20,000 hours of work, according to the proposed rule.

Supporters and critics

Treasury Secretary Scott Bessent framed the move as national security first. "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," he said in the department's statement.

Senator Jim Banks, an Indiana Republican, called the draft a "huge win for America" in a post on October 22, saying it would cut off American investment in the Chinese super intelligence sector.

The biotech industry is more cautious. John Crowley, chief executive of the Biotechnology Innovation Organization (BIO), the sector's main U.S. lobby group, said in a statement:

"The details of the proposed Treasury Department rules matter. We cannot restrict our way to success."

— John F. Crowley, President and CEO, BIO

MassBio, which represents Massachusetts life sciences firms, said it plans to submit comments. Chief executive Kendalle Burlin O'Connell warned that rules "must be carefully targeted to avoid undermining the innovation ecosystem" that brings new medicines to American patients.

The proposal arrives about a month after President Donald Trump and Chinese President Xi Jinping met in Washington and agreed to collaborate more on trade, Investing.com reported.

What it means for you

If you invest through a brokerage account or a pension, very little changes. Publicly traded shares, ETFs and mutual funds are explicitly excepted, so owning a China fund or a U.S.-listed Chinese stock is not affected by this rule.

If you work in venture capital, private equity or corporate development in the U.S., the compliance load grows. AI startups in China move from "report it" to "off limits", and biotech, hypersonics and parts of supercomputing join the list. Fund managers will need to check limited partner commitments against the $2 million threshold.

If you are a U.S. citizen or green-card holder living in the UK, Canada or Australia, the rule follows you. Treasury defines a U.S. person to include citizens and permanent residents wherever they are, along with foreign branches of U.S. companies and entities they control. Working at a company that receives such investment is not banned, but directing a covered deal could be.

What happens next

• December 7, 2026: Written comments close on regulations.gov.
• Final rule: Treasury will review comments and publish final regulations with an effective date. The law requires implementing rules within 450 days of enactment, according to the fact sheet.
• Until then: The current rules, in force since January 2, 2025, continue to apply.

Open questions include how Treasury treats drug co-development deals as "joint ventures" and whether the biotech definitions will be narrowed after industry comments.

The bottom line

Treasury's draft moves AI to a full ban, adds three sectors and four countries in practice, and puts the burden of checking every deal on investors.

Practical takeaways:

1. Review private deals in the pipeline that involve Chinese, Russian or Iranian tech companies, and map them against the new sectors before the final rule lands.
2. Separate licensing from equity. Drug and tech licensing without an ownership stake appears outside the rule, while equity stakes and joint ventures are inside it.
3. Check fund commitments against the $2 million limited partner threshold and ask fund managers for written assurances where needed.
4. Comment by December 7 if your business is affected, since Treasury is explicitly asking for input on definitions such as pharmaceutical compounds.

FAQ

Does this stop me buying Chinese stocks?

No. Investments in securities traded on an exchange or over the counter, and in funds such as ETFs, are excepted under the proposal.

Why is Venezuela not covered?

Treasury says the law names Venezuela only "under the regime of Nicolás Maduro Moros," which it says no longer exists after the U.S. recognised Delcy Rodríguez as head of state on March 5, 2026.