The China Investment Rule Got Another Year. The Law Meant to Replace It Has a March Deadline.

Does a one-paragraph presidential notice about a “national emergency” change anything for someone building an AI company? This one keeps a rule in place, which is different from changing it, and that’s the point.

On August 3 the President signed a notice continuing for one year the emergency declared in Executive Order 14105, and the Federal Register published it on August 5 [1]. That emergency is the legal footing for Treasury’s outbound investment rule, the one that decides whether a U.S. person can put money into a Chinese AI, semiconductor or quantum company. The notice is issued under section 202(d) of the National Emergencies Act, and it says the emergency “must continue in effect beyond August 9, 2026” [1].

What the notice actually does

Not much on its own, and that’s worth saying plainly. It changes no regulation. Its rationale is the same one the 2023 order gave: countries of concern are exploiting U.S. outbound investments, “including certain intangible benefits that often accompany United States investments and that help companies succeed” [1, 2].

The rule it keeps alive is 31 CFR part 850, which Treasury finalized in November 2024 and which took effect January 2, 2025 [3]. When the rule came out, Paul Rosen, then Treasury’s Assistant Secretary for Investment Security, described the target as capital plus “intangible benefits like managerial assistance and access to investment and talent networks that often accompany such capital flows” [4]. The country of concern is China, including Hong Kong and Macau [4].

For AI, the rule draws two lines [3]:

• Notify Treasury within 30 calendar days of closing if a U.S. person invests in a covered Chinese company developing an AI system trained with more than 10^23 computational operations, or one designed for military, government intelligence or mass-surveillance uses, or intended for cybersecurity, digital forensics, penetration testing or robot control.
• Don’t do the deal if the system is trained with more than 10^25 operations, or more than 10^24 using mainly biological sequence data, or is designed exclusively for military, intelligence or mass-surveillance use.

There are carve-outs. Publicly traded securities are excepted, and so are limited partner stakes in a fund if your committed capital is $2,000,000 or less, or if you get a binding contractual assurance that your money won’t go into a covered deal [3].

The replacement Congress already passed

The Fiscal Year 2026 NDAA, approved December 18, 2025, includes Title LXXXV, the Comprehensive Outbound Investment National Security Act of 2025, or COINS Act [5]. It adds a new Title VIII to the Defense Production Act, which puts the outbound program in statute instead of resting it on a yearly emergency renewal [5].

Treasury has already said how the handoff works. In an April 2026 proposal for a FinCEN whistleblower program, the department wrote that the January 2025 rules “remain in effect until the Treasury Department issues regulations pursuant to the COINS Act” [6]. So you’re living under the old rule, renewed this week, until the new one exists.

What changes when it does:

• More countries. The statute’s list is China (with Hong Kong and Macau), Cuba, Iran, North Korea, Russia and Venezuela [5].
• More technology. It keeps semiconductors, AI and quantum, and adds high-performance computing and supercomputing, and hypersonic systems [5]. Treasury sets the technical parameters by notice-and-comment rule [5].
• A clock. Treasury must issue notification regulations no later than 450 days after enactment, which by my count is March 13, 2027 [5]. Notifications themselves stay due 30 days after a deal closes [5].
• A help desk, on paper. The regulations must include a way to ask for “non-binding feedback on a confidential basis” on whether a deal is covered, and must account for self-disclosure when setting penalties [5].
• Sharper teeth. Civil penalties track IEEPA’s, and Treasury may compel divestment of a prohibited deal [5].
• A sunset. The title expires seven years after enactment [5].

How each side makes its case

Treasury’s case, made in 2024 and repeated in this week’s notice, is that U.S. money brings expertise and networks along with it, and that this help is what speeds up military-relevant AI and chip work in China [1, 3]. Congress put a version of that view into the statute’s sense-of-Congress section, which says restricting certain outbound investments is “necessary to prevent harm” to national security [5].

The pushback has been about where the lines sit. In the 2024 comment record, several commenters asked Treasury to set the AI prohibition at 10^26 operations, the least restrictive of the options it had floated, and one noted that some widely available commercial models had already been trained at 10^25 [3]. Treasury settled on 10^25 for prohibitions, and for notifications it chose 10^23, the lowest of the three options it had proposed [3]. Congress also wrote in limits on the agency: the regulations should minimize “the cost and complexity of compliance for affected parties,” adopt “the least burdensome alternative that achieves regulatory objectives,” and put the burden of proof in enforcement on the Secretary [5].

What it means if you build things

My read, and it’s opinion.

Most founders aren’t the target, but the definition of “you” is wide. The rule binds U.S. persons, and that includes individual citizens and green card holders [3, 5]. If you’re an engineer who writes angel checks, a seed investment in a Shenzhen robotics startup is in scope the same way a fund’s is. So is a joint venture in China, or setting up an entity there to develop covered technology [3, 5].

The knowledge standard is the compliance cost. The statute defines knowing to include “reason to know of a fact or circumstance’s existence” [5]. For a small fund or a solo angel, that means diligence on a target’s training compute and intended uses, two facts startups don’t always put in a pitch deck. Big funds have counsel for this. Small ones will mostly decline anything that looks close, which is a cost the threshold choice creates.

The 10^23 line is a 2024 number in a 2026 market. Treasury picked it as the lowest of three proposed options [3]. As a legibility matter I’d rather have a number than an adjectival test, but compute thresholds age fast. The COINS Act lets Treasury redefine the parameters by rule [5]. Whether it moves the line up, or adds the two new technology areas with their own lines, is the question that matters most for AI deals.

Plan for two rule sets. If you have a deal in China, Russia or another newly listed country, today’s rule may not cover it and next year’s may. Transactions completed before enactment are excepted from the statute’s definition [5]. Deals completed after December 18, 2025 that the old rule didn’t cover sit in a gray zone until Treasury writes the new one.

What I’m watching

• March 13, 2027. The statutory deadline for COINS Act notification regulations [5]. Watch for a proposed rule before then, and whether it keeps 10^23.
• The feedback process. Confidential, non-binding advice on deal coverage is the most useful thing in the statute for small investors, if Treasury builds it with real turnaround times [5].
• Whistleblowers. FinCEN’s proposed program would offer incentives for tips on IEEPA violations, and the outbound program is one of the IEEPA-based regimes the proposal names [6]. Comments closed June 1 [6].