Treasury Draft Rules Ban US Equity Investments in Chinese Biotech and AI

Key points

• The Treasury Department proposed rules on October 22, 2026, to restrict US investments in China, Russia, North Korea, Cuba, and Iran.
• The regulations target 'prohibited technologies' including biotechnology, artificial intelligence (referred to as 'superintelligence'), hypersonic systems, and quantum computing.
• Biotechnology restrictions cover pharmaceutical compounds, cell and gene therapies, and brain-computer interfaces, aiming to prevent military applications and supply chain dependence.
• The rules apply to transactions exceeding $50,000, specifically targeting equity acquisitions, joint ventures, and convertible debt financing.
• Cash-based licensing deals, common in the pharmaceutical sector, are largely excluded from the restrictions, though anti-evasion clauses may scrutinize certain structures.
• Treasury Secretary Scott Bessent stated the rules aim to protect national security while maintaining an open investment environment through clarity.

Background

This proposal follows the 2023 executive order by President Joe Biden restricting outbound investments in semiconductors and AI, which led to the creation of the Outbound Investment Security Program. In December 2025, Congress passed the Comprehensive Outbound Investment National Security Act, expanding the scope to include more technologies and countries. The current proposal comes amid ongoing US-China trade tensions, despite a temporary trade truce extended to January 2026 following a summit between Presidents Trump and Xi Jinping.

How outlets are covering it

AP News emphasizes the broad expansion of restrictions to include biotechnology and the use of the term 'superintelligence' for AI, noting the timing relative to Trump's waiver of sanctions on Russia. Axios highlights the specific impact on Western drug giants investing tens of billions in Chinese biotechs, noting that licensing deals may remain permissible. The Financial Times focuses on the balance between national security and maintaining an open investment environment, quoting Treasury Secretary Bessent. Fierce Biotech provides detailed analysis of the transaction types affected, noting that while equity investments are banned, cash-based licensing deals are largely spared, though anti-evasion clauses may impact certain structures like the 'NewCo' model. All sources agree on the core restrictions but differ in emphasis: AP and Axios focus on the breadth of the ban, the Financial Times on the policy balance, and Fierce Biotech on the specific transaction mechanics and industry reactions.

Why it matters

The proposed rules could significantly alter the landscape of US-China economic and technological cooperation, particularly in the biotechnology sector where US companies have invested heavily in Chinese innovations. By restricting equity investments and joint ventures, the rules may force US companies to restructure their partnerships with Chinese firms, potentially impacting access to new therapies and technologies. The exclusion of cash-based licensing deals offers some relief to the pharmaceutical industry, but the anti-evasion clauses and broad definitions of 'joint venture' create uncertainty. The rules also signal a continued US strategy to prevent adversaries from leveraging American capital for military or surveillance capabilities, reflecting the broader geopolitical competition between the US and China.

What to watch

The Treasury Department will accept public comments on the proposed rule until December 7, 2026. Following the comment period, the agency will issue a final rule, which may include adjustments to the scope of 'prohibited technologies' and transaction types based on feedback. The biotechnology industry and other stakeholders are expected to lobby for narrower definitions to avoid unintended consequences on innovation and competitiveness. The final rule will determine the extent to which US companies can engage in equity investments and joint ventures with Chinese firms in sensitive sectors.