New Bill Proposes Blocking U.S. Investments in Key Chinese Tech, Defense Sectors; Mandates Transaction Reporting

This legislation, the FIGHT China Act of 2025, sets up new guardrails aimed at restricting certain U.S. investments flowing into China, particularly targeting the defense, surveillance technology, and advanced tech sectors like semiconductors, artificial intelligence (AI), and quantum computing. It also authorizes the President, primarily through the Treasury Department, to impose sanctions on specific foreign individuals and companies linked to these sectors in China (defined as a 'country of concern,' including Hong Kong and Macau). The core goal is to prevent U.S. capital and expertise from aiding the development of technologies deemed critical to national security by entities connected to the Chinese government or military.

Drawing New Lines: What Investments Get Blocked or Flagged?

The biggest change for U.S. individuals and businesses comes under Title II. It outright prohibits Americans from knowingly engaging in 'covered national security transactions' involving 'prohibited technology' if a 'covered foreign person' from China is involved (Sec. 201). Let's break that down:

• 'Prohibited technology' specifically includes things like advanced semiconductors and microelectronics, quantum information technologies, and AI systems with certain end-uses (like surveillance or military applications).
• A 'covered foreign person' is broadly defined to include entities based in or operating primarily in China (including Hong Kong/Macau), linked to the Chinese Communist Party or government, or majority-owned by such entities (Sec. 102, 201).
• 'Covered national security transactions' cover a range of activities beyond simple stock buying, like acquiring controlling interests, certain debt financing that gives rights, joint ventures, or greenfield investments involving these technologies and entities. Standard passive investments in publicly traded securities, index funds, or certain venture capital funds are generally excluded unless they're designed to get around the rules (Sec. 201 definitions).

Real-world example: A U.S. tech fund looking to invest heavily in a Chinese AI startup developing military or surveillance applications would likely find that transaction prohibited under this bill.

Beyond outright bans, the bill also requires U.S. persons to notify the Treasury Department within 30 days after completing a covered transaction involving 'notifiable technology' (a category likely encompassing other advanced tech not meeting the 'prohibited' threshold) with a covered foreign person (Sec. 201). Think of it as a reporting requirement for deals in sensitive, but not banned, areas.

Sanctions and Watchlists: Who's on the Radar?

The bill leverages existing tools and adds new teeth. Title I gives the President (delegated to the Treasury Secretary) clear authority to impose sanctions, such as blocking property transactions, on foreign persons identified as 'covered foreign persons' knowingly operating in China's defense, related materials, or surveillance tech sectors (Sec. 101). This formalizes and potentially expands sanction capabilities.

Title III focuses on the existing Non-SDN Chinese Military-Industrial Complex Companies List (Non-SDN CMIC List). The Treasury Department is required to regularly review other government watchlists (like the Commerce Department's Entity List or the Defense Department's Section 1260H list) and report to Congress on whether entities from those lists should be added to the Non-SDN CMIC list (Sec. 301). Crucially, the bill directs the President to issue rules prohibiting U.S. persons from knowingly holding securities (like stocks or bonds) of any company on this Non-SDN CMIC list. There's a 365-day grace period after the rules take effect for investors to sell off existing holdings (Sec. 301).

Real-world example: If you own shares in a Chinese company that gets added to the Non-SDN CMIC list, you'd have one year from the effective date of the prohibition rule to divest those shares.

The Fine Print: Rules, Penalties, and Global Team-Up

Getting this system running involves several steps. The Treasury Department is tasked with writing detailed regulations within 450 days, including setting up a process for businesses to get non-binding feedback on whether a potential transaction might be prohibited (Sec. 201). They're also directed to coordinate with allies to encourage similar investment screening measures abroad (Sec. 201).

Breaking the rules carries significant weight. Violating the investment prohibitions or notification requirements could lead to civil penalties – the greater of $250,000 or twice the transaction amount – and potentially being forced to divest the investment (Sec. 201). Violating sanctions carries penalties aligned with the International Emergency Economic Powers Act (Sec. 101).

Waivers are possible. Both the investment restrictions and the securities holding prohibition allow for presidential waivers on a case-by-case basis if deemed necessary for U.S. national security or foreign policy interests, requiring notification to Congress (Sec. 201, 301). To fund implementation, the bill authorizes $150 million per year for the first two years for Treasury and Commerce, along with special authority to hire staff quickly (Sec. 4).