The United States is reportedly on the verge of implementing new restrictions on American investments in China’s artificial intelligence sector. This development comes as part of an effort to curb the potential enhancement of China’s military capabilities through U.S. expertise.

What Happened: The impending regulations are under final review and are expected to be released soon. These rules stem from an executive order issued by President Joe Biden in August. The Office of Management and Budget is currently reviewing the rules, a step that typically precedes their release within a week, Reuters reported on Monday.

Laura Black, a former Treasury official, highlighted the strategic timing of these regulations, which come just ahead of the Nov. 5 U.S. presidential election. The Treasury Department had previously issued draft rules in June, inviting public feedback and outlining specific exceptions.

The proposed regulations focus on investments in AI, semiconductors, microelectronics, and quantum computing. They require U.S. investors to notify the Treasury Department about certain transactions and specify prohibited AI system uses and computing power thresholds.e

See Also: US Probe Into Potential Sanctions Breach By TSMC Threatens Apple’s iPhone Chips Production

Black anticipates that the final rules will offer clarity on AI coverage and investment thresholds. Exceptions may include publicly traded securities, specific limited partnerships, and syndicated debt financings.

The Treasury Department has yet to respond to Benzinga’s queries.

Why It Matters: The U.S. restrictions on AI investments in China come amid a backdrop of increased Chinese investment in AI infrastructure. Despite U.S. sanctions, Chinese tech giants like Alibaba Group Holding Ltd (NYSE:BABA), Tencent, and Baidu Inc (NASDAQ:BIDU) have significantly ramped up their AI investments. In the first half of 2024, these companies invested 50 billion Chinese yuan ($7 billion), a substantial increase from the previous year, focusing on processors and infrastructure for AI training.

Moreover, Chinese AI firms, including startups and giants like Alibaba and ByteDance, are making strides in reducing AI costs. They are optimizing hardware and focusing on smaller data sets to defy U.S. chip sanctions.

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This story was generated using Benzinga Neuro and edited by Pooja Rajkumari