Wall Street’s China Investment Plans In Tatters Over Stringent Treasury Rules

In mid-December, representatives from Wall Street’s largest banks met with U.S. Treasury officials to understand how their clients could comply with new rules governing investments in Chinese companies deemed potential national security risks.

The regulations apply to both U.S. persons and foreign entities controlled by U.S. persons, covering investments in Chinese entities or those outside China controlled by Chinese persons engaging in restricted activities.

Instead of gaining clarity, bankers from Goldman Sachs, Morgan Stanley, and others left the meeting more confused, Bloomberg News’s Cathy Chan reported.

On Jan. 15, 2025, Giulia Interesse of China Briefing (Dezan Shira & Associates) detailed the scope of the regulations, stating they cover a broad range of investment activities, including:

• Acquisition of equity or contingent equity interests

• Debt financing that provides governance or financial control

• Greenfield and brownfield investments

• Joint ventures and partnerships

• Limited partner investments in funds directing capital toward restricted activities

The rules also take into account intangible benefits of U.S. investments, such as managerial expertise, talent networks, and enhanced market standing, which could indirectly aid China’s strategic goals.

The regulations apply to both U.S. persons and foreign entities controlled by U.S. persons, covering investments in Chinese entities or those outside China controlled by Chinese persons engaging in restricted activities.

“The rule introduces a two-tiered system,” Interesse explained:

• Prohibited transactions: Investments in quantum computing and high-risk AI and semiconductor activities are outright banned.

• Notifiable transactions: Certain AI and semiconductor investments posing lower risks must be disclosed to the U.S. Treasury before proceeding.