AI and Chips: Washington Tightens the Noose on American Investments in China

End of the playground for American venture capital. The U.S. Treasury released a draft rule on Thursday, October 22, that prohibits or requires reporting for a portion of American investments in AI, semiconductors, and four other families of technologies in China, Russia, Iran, North Korea, and Cuba.

Congress had included Venezuela in the law, but the Treasury has removed it. The text comes just days after a record disengagement of hedge funds from tech, measured by Goldman Sachs. American crypto funds are also affected. Many are betting on projects that combine AI and blockchain and will now have to verify that no Chinese company is behind them.

Key points

• Six targeted sectors, with biotechnology added to the five planned by lawmakers
• Caracas is out of the scope, while Moscow and Beijing remain
• Listed securities, index funds, and small commitments from limited partners are spared
• Consultation open until December 7 before a final version

The Treasury Places Six Investment Sectors in China Under Surveillance

The draft implements the COINS Act (Comprehensive Outbound Investment National Security Act), slipped into the military programming law for fiscal year 2026 that Donald Trump signed on December 18, 2025. This text enshrines a program born from an executive order by Joe Biden in August 2023. Until now, it only targeted China, Hong Kong, and Macau. Its implementation rule, finalized in 2024, has been in effect since January 2, 2025.

Congress designated semiconductors and microelectronics, AI, quantum technologies, high-performance computing, and hypersonic systems. Scott Bessent adds biotechnology, as the law allows. The draft also renames artificial intelligence as "superintelligence," in accordance with a presidential decree from September 29 that mandates this vocabulary for federal agencies.

The Trump version significantly tightens the 2024 version on AI. Any investment in an entity from a targeted country that develops such a system becomes prohibited, and the mere obligation to report disappears for these operations. The same tightening applies to chips. In addition to existing prohibitions (design software, manufacturing equipment, advanced processors), other components such as radiation-hardened components, photonic chips, and high-bandwidth memory used in AI accelerators are added.

In the Treasury's statement, Scott Bessent says he wants to prevent "our adversaries from using American investment to develop critical technologies that threaten the national security of the United States."

Venture Capital Funds and LPs on the Front Line

The rule applies to American citizens and permanent residents, American legal entities and their foreign branches, anyone present on U.S. soil, and foreign companies they control. It targets equity stakes, certain convertible debts, joint ventures, new establishments, and part of the commitments of LPs (limited partners who entrust their money to a fund) in non-American vehicles.

Listed stocks, mutual funds, and ETFs are exempt from the rule. An individual holding a tracker on Chinese stocks can sleep easy. An LP investing $2 million or less in a fund is also exempt. As for operations that accumulate $50,000 or less over twelve months, they remain subject to prohibitions but are exempt from reporting.

No one filters the files in advance. Each investor must determine alone whether their operation is prohibited, to be reported, or out of scope, and Washington will not publish any list of the foreign companies involved.

The Treasury has already wielded the stick. Amidi, the parent company of the Plug and Play accelerator, was fined $200,000 in July, made public on October 7. Its fault? Failing to report a $92,478 stake taken by a subsidiary in Noematrix, a Chinese AI and robotics startup.

Venezuela is Out of the List, Russia Remains

The law targeted "Venezuela under Nicolás Maduro's regime." This regime no longer exists since Maduro was captured and extradited to the United States on January 3, 2026. Caracas no longer meets the definition of a concerned country. The Treasury warns that some investments related to Venezuelan entities could still fall under the law, without providing examples.

Moscow, on the other hand, remains in the crosshairs. According to AP, Russia appears in the draft just days after Donald Trump lifted some sanctions against it following a diesel deal with Vladimir Putin. The trade truce concluded last year with Xi Jinping runs until January.

Comments are open on regulations.gov until December 7. The law gives the Treasury 450 days after its enactment to finalize its regulations, until March 13, 2027. The rules from the Biden era remain applicable until then, while Donald Trump refuses to slow down the race for AI.

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