The US government is extremely concerned about China catching up with China, despite the country still leading the world in sophisticated AI growth. The Committee on Foreign Investment in the United States ( CFIUS) and other measures, such as export controls on advanced computer chips, are intended to work together to collectively impede or at least stifle the growth of Chinese AI companies.
For US Iot owners, the new regulations outline two major no-go areas. The first is for companies developing technology specifically for sympathetic applications like China’s military and intelligence service, to which buyers will be unable to invest money, irrespective of how advanced their AI might be.
American venture capital firms will need to establish a certain level in order for Chinese startups to decide whether to invest in them in areas like buyer AI. The company’s AI type can only have 1025 flop, or floating level operations per minute, a numerical rating that indicates the dimension and capabilities of an AI model. ( The European Union set the same bar for which AI systems should be subject to more stringent regulations. ) Due to concerns that such tools could be used for specially delicate purposes, like developing bioweapons, an upper threshold of 1024 flops will be applied to Artificial systems that are mostly trained using natural sequence data.
” A 1025]flops ] model is the frontier. The largest versions currently in use this channel between 1025 and 1026 [flops], according to Jaime Sevilla, the chairman of Epoch AI, a research institute that tracks the AI industry’s development. That includes all the great brands like OpenAI’s GPT, Google’s Gemini, Facebook’s Llama, and Anthropic’s Claude. The border was like in 2022 with a 1024 flops type. It is much more common for most to be training above the 1024 flop]threshold now ]”, Sevilla explains.
Although Sevilla claims that businesses are becoming more oblique about disclosing the exact dimensions of their designs, Epoch AI keeps track of the dud counts that AI firms have publicly disclosed or can be estimated from their technical requirements. For today, there are only two Chinese firms, TikTok user ByteDance and Zhipu AI, that have formally announced versions exceeding 1025 flop. None of the Chinese models that were mostly trained on biological sequence data have more than 1024 flops.
The Treasury Department is aiming to target a relatively small portion of China’s Artificial business, which will be barred from all possible US opportunities in January by implementing the 1025 flop standard. The restrictions does have a constrained, limited, immediate economic impact, but they will probably help to deter all Chinese AI companies from future requests for assistance, whether financially or otherwise, from the United States. That might become even more important if the incoming Trump administration decides to enact changes that will make them even stricter.
Many of Trump’s initial appointees have a proven track record of being harsh with China, and some have specifically expressed an interest in limiting investor flow from the US to the People’s Republic. The US senator from Florida Marco Rubio, who has been chosen to serve as Trump’s new secretary of state, introduced a bill in September that would significantly increase the taxes that investors must pay on their investments in Chinese companies.
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It’s uncertain whether the new regulations will have an impact on the Chinese AI industry in the near future. Following years of tense relations between the US and China, particularly on issues involving advanced technology, investment flows have already slowed. Regulatory uncertainties, the weakened Chinese economy, and China’s domestic tech crackdown all contributed to the decline in investor activity as well.
” The high-water mark of these types of investments was in fact 2016,” according to the statement. And since then, there’s been a pretty big decline”, says Sarah Bauerle Danzman, an associate professor of international studies at Indiana University, Bloomington, who previously assisted the US government in reviewing foreign investments. However, there is a chance that American investors will again be interested in pursuing deals with Chinese AI companies, and Danzman claims that the new restrictions “really hit up the hatches” even if a “real deal deluge” is developing.
A US investor may still be required to notify the Treasury Department about their transaction and the work they’ve done under the new regulations, as long as the startup’s AI model is at least 1023 flops (essentially encompassing all large-scale models being developed today and in the future ), even if its AI model is smaller than the 1025-flops size threshold. In essence, this means that the US government is developing a system to track the flow of funding between Chinese companies working on artificial intelligence and US investors.
” In order to confirm that a transaction is out of scope, it will require significant due diligence undertaken by US investors”, says Robert A. Friedman, an international trade lawyer at law firm Holland &, Knight. Domestic AI companies and their supporters have applauded the rules, but he predicts that they will present a challenge for venture capitalists with international portfolios.
Uncertain Future
The Treasury Department has indicated that some minor adjustments are still being made to make the rules more specific, with the outbound investment restrictions effective starting on January 2. Additionally, officials said they are working with US allies and the G7 countries to develop similar policies to stop Chinese AI companies from engaging in venture capital investments in Europe, Canada, or Japan, which are against US law.
How a second Trump presidency might alter things is currently the biggest question, as with most other aspects of the US government. Dampfman points out that many supporters of Trump’s venture capitalist campaign are opposed to the Treasury Department’s proposed regulations, so they could try to lobby the president to change them. Several major American companies, like Tesla and Blackstone—both led by outspoken pro-Trump billionaires—have significant investments in China and could see their businesses negatively impacted by tighter constraints.
According to other experts WIRED, the new Republican administration, which is expected to include a number of China hawks like Rubio, will expand the rules ‘ scope. A new executive order may be possible. Or, given the unified Republican government, perhaps expansion would take place via legislative action”, says Kilcrease. That could lead to more policies aimed at Chinese startups of all kinds, including those in the fields of biotechnology and batteries.
The Biden administration’s tech policy toward China has been defined by, at least in principle, the idea of a” small yard, high fence”, or in other words, designating relatively narrow areas where the US government can set very strict restrictions. What that concept looks like in action in the most recent version of the outbound investment rules. However, under Trump, Chinese companies might start to realize how large a yard can actually be.
