The White House focuses on US investments in Chinese AI and quantum technology

A new “final line” from the White House announced Today’s goal is to stem the flow of U.S. venture capital and other investment funds into Chinese technology that poses a national security risk, such as quantum computers, artificial intelligence and advanced microelectronics, senior White House officials said.

The rule is intended to provide guidance for implementation executive order The White House last August directed the Treasury Department and other relevant agencies to identify categories of investments in Chinese technology that could pose a threat to the United States. The current rule “prohibits U.S. citizens from conducting certain transactions involving semiconductors, quantum and artificial intelligence. And second, it requires U.S. persons to notify the Treasury of certain other transactions involving semiconductors and artificial intelligence,” a senior White House official told reporters ahead of the release.

The rule bans investments in any Chinese company that develops or scales up quantum computers or networks that could undermine encryption. That follows the publication by several research papers from China purporting to show that Chinese advances in quantum computing have made key US encryption standards vulnerable, such as the 2,048-bit RSA encryption system used by banking systems and software makers all over the world.

Experts to have pushed back based on the claims of those documents, but the White House says the threat posed by China’s continued quantum work remains very real, even if it has not yet resulted in encryption-busting capabilities.

“These technologies could be used for advanced code breaking, developing next-generation military applications or offensive cyber operations,” a senior White House official said.

AI is another key focus of the new rule. Chinese investments in AI include areas such as facial recognition to target minority groups, deep falsifications to spread disinformation, and autonomous weapons.

How big a problem is US investment in Chinese military technology? A February 2023 paper from the Center for Security and Emerging Technologies said that between 2015 and 2021, US investors pumped $40.2 billion into 251 Chinese AI companies, accounting for 37 percent of the $110 billion raised by all Chinese companies working on AI.

According to CSET, “167 US investors participated in 401 investment transactions – or 17 percent of the 2,299 global investment transactions – in Chinese AI companies.” The vast majority of those investments, more than 90 percent, came from venture capital.

“I think if you think about this set of facts and scenarios, this is the kind of situation, that when it comes to certain artificial intelligence that could impact our national security, from a military intelligence, cyber or other related perspective, that is what we do.” I am concerned about the issue,” a senior White House official said.

According to another senior White House official, much of the venture capital investment that went to Chinese startups went to companies that ultimately ended up on the Treasury Department’s “Entity List,” which restricts certain types of U.S. investments.

“As we looked at some of the case studies to inform the development of this executive order, and the regulations were actually focused on cybersecurity… we saw a number of venture capital investments directly into companies that were working on cybersecurity that ended up going to market. Entity list for working with Chinese military and intelligence services.”