WASHINGTON—President Trump signed into law new powers to screen and restrict U.S. investment in Chinese technology firms, marking the most significant effort yet to police how American capital flows into businesses that bolster Beijing’s military and surveillance state.
Lawmakers in both parties have grown increasingly concerned that U.S. money and expertise are accelerating China’s advances in cutting-edge technologies.
The outbound-investment provisions, part of the annual National Defense Authorization Act, cites entities in China and other countries of concern—including Cuba, North Korea, Venezuela and Russia—that develop “dual-use” technologies with both commercial and military applications. Lawmakers argue that curtailing U.S. investment in those areas is critical to American national-security and foreign-policy interests.
“Investments propping up Communist China’s aggression must come to an end,” House Speaker Mike Johnson (R., La.) said earlier this month.
The NDAA was passed by the House last week and the Senate on Wednesday, both by large bipartisan majorities.
The legislation cements a Biden administration executive order in 2023 that initiated the first U.S. attempt to screen outbound capital. But where the White House acted under emergency authorities, Congress is now codifying and expanding those powers—to monitor, and in some cases block, U.S. financing of Chinese work on emerging technologies including artificial intelligence, quantum computing and advanced semiconductors.
“This is the furthest this has gotten in the legislative process,” said Emily Kilcrease, a director at the Center for a New American Security who helped coordinate investment and national security during the first Trump administration.
The legislation authorizes the president to use International Emergency Economic Powers Act sanctions to prohibit Americans from acquiring significant equity or debt in specific Chinese companies.
The entities are broadly defined, including those based in China, Hong Kong and Macau; state-owned enterprises; companies tied to Chinese Communist Party officials and businesses they own or control. To be restricted, the entities must operate in China’s defense or surveillance-technology sectors.
Even deals that aren’t banned will trigger mandatory government notification, requiring U.S. companies to report transactions involving sensitive Chinese technologies.
For lawmakers, the effort diverges from much of the past two decades, when billions of dollars flowed into China’s tech sector from U.S. venture-capital firms, pension funds and endowments. Those investments helped build some of China’s most important semiconductor, AI and hardware companies at a time when Washington viewed technological engagement as benign.
In recent years, that history has come under scrutiny. Earlier this year, The Wall Street Journal detailed how Lip-Bu Tan—now Intel’s chief executive—spent decades channeling U.S. venture capital into Chinese chip makers through his firm Walden International, supporting companies that ultimately became central to Beijing’s semiconductor ambitions. Funds managed by U.S.-based Vanguard Group, BlackRock and Fidelity have increased their stakes in Alibaba despite concerns from lawmakers.
It is that pattern that the new outbound regime seeks to prevent.
“Every dollar invested in China by a United States investor into a Chinese company is a dollar that’s going toward the potential production of weapons and technology that one day may be used to kill Americans,” said Sen. John Cornyn (R., Texas), who led the legislation over the last half decade.
Sen. Catherine Cortez Masto (D., Nev.) said the future of U.S. national security was “reliant on making sure we remain ahead of our adversaries in the race to develop cutting-edge technologies like AI and semiconductors.”
U.S. investment into China, which helped drive the country’s economic development, has slowed in recent years as the geopolitical rivalry has intensified. Direct U.S. investment including U.S. venture-capital investment into China is at all-time lows, after declining beginning 2018, according to the Rhodium Group.
Over the years, private-sector resistance has softened to outbound-investment limitations. Many firms have already been complying with former President Joe Biden’s executive order for the past year and participated in its comment process. Congressional staffers said the NDAA wasn’t likely to increase the compliance burden beyond what the administration already has put in place.
The legislation also settles a long-running debate in Congress by blending competing approaches. Rather than choose between sector-based rules, a sanctions-style entity list or public-market restrictions, lawmakers adopted an “all-of-the-above” strategy.
Write to Anvee Bhutani at anvee.bhutani@wsj.com
