The surest short-term impact is that US investors who are still interested in Chinese AI Startups You will have to do a lot more due diligence. The Treasury Department is not creating a new government committee like CFIUS that will review every transaction investors submit, but rather asking them to do their own homework and report whether they believe a Chinese AI company would be covered.
Under the new rules, even if a Chinese startup’s AI model is smaller than 1025-failure size threshold, a US investor could still have the responsibility to notify the Treasury Department about his transaction and the homework he has done, as long as his model is at least 1023 failures (encompassing essentially all large-scale models being developed today and in the future). In effect, that means the US government is creating its own system to monitor the overall flow of money from US investors to Chinese companies working on AI.
“To confirm that a transaction is out of reach will require significant due diligence on the part of U.S. investors,” says Robert A. Friedman, an international trade attorney at the law firm Holland & Knight. While the standards have been welcomed by domestic AI companies and their backers, they will become a hurdle for venture capitalists with international portfolios, he says.
Uncertain future
Restrictions on outbound investment will take effect on January 2 and, in the meantime, the Treasury Department has pointed out that some small changes are still on the way to further clarify the rules. officials also said They are making efforts to coordinate with US allies, such as the G7 countries, to introduce similar measures that prevent Chinese AI companies from turning to venture capitalists in Europe, Canada or Japan for the types of investments prohibited in the United States.
The biggest uncertainty now, as with most of the US federal government, is how a second Trump presidency could change things. Danzman notes that many members of the venture capital community who supported Trump are against the type of regulations introduced by the Treasury Department, so they could potentially try to pressure the president to roll them back. Several major American companies, such as Tesla and Blackstone, both run by openly pro-Trump billionaires, have significant investments in China and could see their businesses negatively affected by tighter restrictions.
Other WIRED experts spoke to expect the new Republican administration, which will include several China hawks like Rubio, to expand the scope of the rules. “We may see a new executive order. Or, given the unified Republican government, perhaps expansion would be accomplished through legislative action,” Kilcrease says. That could mean more measures targeting other types of Chinese startups, in sectors ranging from biotech to batteries.
The Biden administration’s technology policy toward China has been defined, at least in principle, by the idea of a “small yard, high fence,” or in other words, the designation of relatively narrow areas where the US government can set very strict restrictions. strict. The latest version of the overseas investment rules is an example of what that idea looks like in action. But under Trump, Chinese companies could end up seeing how big the shipyard can become.