---
title: Treasury Proposes Ban on US Outbound Investment in China-Linked Biotech and AI
description: Treasury's COINS Act proposal would bar US investment in China-linked biotech and AI developers and exempt public stocks. Comments close December 7.
author: Darie Nani (Editor-in-Chief)
date: 2026-10-26T13:18:09.922Z
updated: 2026-10-26T13:18:09.938Z
canonical: https://www.sovereignmagazine.com/article/how-will-outbound-investment-restrictions-affect-biotech
image: https://cdn.nanimediahouse.com/us-treasury-building-washington-aerial-481378.webp
categories: Finance
content_type: News
region: United States
publication: Sovereign Magazine
schema_type: Article
---

The US Treasury proposed rules that would, for the first time, bar Americans from investing in Chinese biotechnology companies that work on bio-derived compounds, biomanufacturing, gene sequencing, bioinformatics and several related fields. The same proposal would ban US investment in any China-linked company that develops an artificial intelligence system. Under the rules in force today, investments in many Chinese AI developers only have to be reported to Treasury.

The proposal would put into effect the Comprehensive Outbound Investment National Security (COINS) Act, which Congress passed as part of the fiscal 2026 defense bill and which became law on December 18, 2025. The act writes into statute a program that began with an August 2023 executive order and has applied since January 2, 2025, to US money going into Chinese [semiconductors](https://www.sovereignmagazine.com/article/china-bans-nvidia-chips-after-decade-of-us-tech-restrictions), quantum computing and AI. Biotechnology is not one of the five sectors named in the law. The act lets the Treasury Secretary add technologies after consulting Congress and taking public comment, and Treasury says the Secretary "has added biotechnology to the proposed regulations."

The proposal also adds hypersonic systems and high-performance computing, and it widens the countries of concern from China, Hong Kong and Macau to Cuba, Iran, North Korea and Russia. The law names Venezuela under Nicolas Maduro as well, but Treasury says that government no longer exists, since the US recognized Delcy Rodriguez as head of state on March 5, so Venezuela does not meet the definition. In the existing sectors, the semiconductor ban would extend to radiation-hardened and photonic chips and high-bandwidth memory, and the quantum ban to algorithms and applications for quantum computers.

"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," Treasury Secretary Scott Bessent said. Bessent added that the proposal gives US and foreign investors "clarity" and a chance to give feedback.

Treasury is taking comments until December 7, and nothing changes until a final rule, still to be written, sets the date the new requirements start. Until then the current China-only rules continue to apply. Lawyers at Baker McKenzie say the law gives Treasury until about March 2027 to finish the rulemaking.

## Americans Could No Longer Fund Chinese Companies in Biomanufacturing, Sequencing or Bioinformatics

Treasury lists six biotech areas in its [fact sheet on the proposal](https://home.treasury.gov/system/files/206/Fact-Sheet-FAQs-COINS-Act-NPRM.pdf): certain bio-derived compounds or materials; brain-computer interfaces; biomanufacturing equipment and facilities; biotechnology or equipment used in biological design, sequencing and similar work; bioinformatics tools; and hardware or software for automated scientific discovery or experimentation. The fact sheet describes all six as a new prohibition and lists no biotech activity that would only need to be reported. For semiconductors, by contrast, chip work outside the banned categories must still be reported.

The American Biosecurity Initiative, a group of biotechnology, defense and intelligence experts that works on biotech and security policy, says the scope includes "the development of pharmaceutical compounds." Patients Rising, a patient advocacy group, says Treasury describes those compounds as including "small molecules, vaccines, blood products, cell and gene therapies, and monoclonal antibodies."

The AI ban would apply to any company in a country of concern that develops an AI system of any kind. Treasury calls these ["super intelligence" systems](https://www.sovereignmagazine.com/article/sanders-ban-superintelligent-ai-trump-china-race) because Executive Order 14434, signed on September 29, requires federal agencies to use "Super Intelligence" in place of "Artificial Intelligence" in certain documents. Treasury uses the new term where the current rules say "AI systems."

## Public Stocks, Index Funds and Fund Stakes of Up to $2 Million Would Stay Exempt

The rules would apply to US persons, which Treasury defines as US citizens, green-card holders, US companies and their foreign branches, and anyone in the United States, along with obligations covering the foreign companies they control. The covered deals are equity stakes and rights to equity, convertible debt and loans that give the lender certain rights, joint ventures, greenfield investment or other corporate expansion, a US person directing certain deals by a foreign person, and some limited partner stakes in non-US funds.

Shares traded on any exchange or over the counter would be exempt, as would index funds, mutual funds and exchange-traded funds. A limited partner in a non-US venture capital, private equity or fund-of-funds vehicle would be exempt if its committed capital is $2 million or less, or if the fund gives a binding contractual assurance. Bank lending, payments, underwriting and equity received as pay from an employer are also excepted, and so are uncalled capital commitments signed before the final rule takes effect. Some of these exceptions would not apply where the investor gets governance rights beyond standard minority shareholder protections. Deals totaling no more than $50,000 over 12 months would be spared the reporting requirement, though not the ban. The proposal would not stop Americans from working at a Chinese company that receives investment.

## Treasury Will Not Publish a List of Covered Chinese Companies

Treasury does not plan to screen deals or name the companies the rules cover. Each investor would have to make "a reasonable and diligent inquiry," and Treasury could treat an investor as knowing a fact if that inquiry would have turned it up. Reportable deals would have to be filed within 30 days of closing. A party with a direct financial interest in an actual deal could ask Treasury for non-binding feedback on whether it is banned, and an investor could request an exemption on national interest grounds. Violations could bring civil penalties up to the maximum set under the International Emergency Economic Powers Act, and Treasury could order a banned investment sold.

On October 7, Treasury announced [its first penalty under the current rules](https://home.treasury.gov/news/press-releases/sb0652): $200,000, imposed in July, against Amidi LLC, the parent of the organization that does business as Plug and Play Tech Center. Amidi's subsidiary, a Chinese fund, invested about $92,478 in April 2025 in Shanghai Qiongche Intelligent Technology, known as Noematrix, a Chinese embodied AI company, and the deal was never reported. Treasury said it found the transaction through its "regular and ongoing compliance and market monitoring efforts."

## Licensing Deals for Chinese Medicines Are Not Listed in the Proposal

Drugmakers in the US and elsewhere have been buying the rights to China-developed medicines at a record pace: data from PharmCube's NextBiopharm database, published by the DIA Global Forum, show China's outbound drug deals rose from 94 transactions worth $51.9 billion in 2024 to 157 worth $135.7 billion in 2025, with $7.0 billion paid upfront. IQVIA counted 61 China-to-international partnering deals in the first half of 2025, and 37 of them involved a US company.

Licensing agreements are not on Treasury's list of covered transaction types, Patients Rising and the trade publication Pink Sheet both report. STAT reports that the proposal would "still allow American drugmakers to buy the rights to medicines invented in the country." Treasury's own FAQ says contractual arrangements would be excepted, apart from those for technology transfer or technical knowledge transfer.

A licensing deal that also carries an equity stake or a joint venture would fall inside the rule, Patients Rising says, and Pink Sheet reports that "whether licensing deals are covered would depend on their structure." Before the proposal came out, Laurie Burlingame, an attorney at Morse, Barnes-Brown & Pendleton, told Fierce Biotech that "a pure license without there being an equity component or an option" would not necessarily be covered, while joint ventures and NewCo deals, in which a newly formed company holds the licensed rights, could be more exposed, BioPharm International reported. Treasury can still change how the final rule treats licensing.

## Biotech and Patient Groups Say the Rule Should Not Slow New Medicines

Jennifer Crook, executive director of the American Biosecurity Initiative, said protecting sensitive technologies from foreign adversaries is important, but that "Treasury's proposed restrictions on outbound biotechnology investment must address specific national security risks without unnecessarily discouraging investment, slowing innovation, or placing American companies at a competitive disadvantage."

Patients Rising says it shares Treasury's goal but argues that "as proposed, this rule puts vaccines, cell and gene therapies, antibodies, and even ordinary small-molecule medicines in the same prohibited category as dangerous biological agents." The group notes that Treasury "has asked how the rule should be narrowed." MassBio, which has more than 1,700 members, plans to submit comments asking that the final rules protect national security without limiting American biotech companies or delaying patients' access to treatment.

The proposed rule is scheduled to appear in the Federal Register on October 26, and comments can be filed through regulations.gov.

## FAQ

**Q: Are deals completed before the COINS Act became law affected?**
Transactions completed before December 18, 2025 are excepted from the new rules, though they may still fall under the current outbound rules. Those rules keep covering US investors' activity from January 2, 2025 until the final COINS rule takes effect.

**Q: Does the rule reach a foreign fund or subsidiary that an American investor controls?**
Yes. The proposal places obligations on US persons for their controlled foreign entities, meaning a company or fund organized outside the United States of which a US person is the parent. Treasury's first penalty, against Amidi, was for an unreported investment made by its Chinese fund subsidiary.

**Q: What counts as knowing that a deal is covered?**
Under the proposed standard, an investor can be treated as knowing a fact if it actually knows the fact or that it is substantially certain, if it is aware of a high probability that it exists or will occur, or if a reasonable and diligent inquiry would have revealed it. The proposal lists factors Treasury could weigh in judging whether an inquiry was reasonable and diligent.

**Q: Does adding Russia, Iran, North Korea and Cuba change much for investors?**
Baker McKenzie says US economic sanctions already prohibit or restrict US investment in those countries, so the law firm expects the effect of the wider country list to be minimal.

**Q: What is the difference between a prohibited and a notifiable deal?**
A prohibited deal is banned outright, and Treasury can order the investor to sell it. A notifiable deal is allowed, but the US investor must report it to Treasury within 30 days of closing.

**Q: Can comments on the proposal be submitted anonymously?**
Yes. Any individual, business or organization can comment through the federal eRulemaking portal at regulations.gov, either anonymously or with attribution.