The screening of outbound investments “recognizes that capital can accelerate military-relevant capabilities just as surely as technology transfer can,” Craig Singleton, a senior fellow at the think tank Foundation for Defense of Democracies, told Fortune. The U.S. Treasury Department published proposed regulations in the Federal Register on October 26, 2026, implementing the Comprehensive Outbound Investment National Security Act to prohibit certain American financial flows into Chinese biotechnology and artificial intelligence sectors.
Treasury Proposes Strict Outbound Investment Bans
The proposed regulations (new 31 C.F.R. Part 851) would bar U.S. persons from investing in Chinese biotechnology companies that develop or produce small molecules, biologics, vaccines, cell and gene therapies, and associated delivery mechanisms utilizing biological systems. Treasury is accepting public comments on the notice of proposed rulemaking through December 7, 2026, via the Federal eRulemaking Portal under Docket No. TREAS-DO-2026-0595, according to Thompson Hine. The entry into force of the new regulations is likely to be close to the end of the first quarter of 2027.
The program builds on restrictions initiated in 2023 when then-Joe Biden signed an executive order targeting semiconductors, quantum computing, and artificial intelligence, Fortune reported. Congress codified and expanded the framework in December 2025 to cover Cuba, Iran, North Korea, and Russia alongside China, adding technologies such as hypersonic systems and biotechnology. Jason Chipman, a former Justice Department lawyer and partner at WilmerHale, noted to Fortune that the expanded rules will require more substantial corporate compliance programs.
Biotechnology Modalities Facing U.S. Capital Restrictions
The prohibitions target the development, engineering, or use of biological systems to modify, enhance, produce, or control pharmaceutical compounds. Small molecules are covered if a biological system or component of a biological system is used to modify, enhance, produce, or control the compound.
Deal structures involving licensor equity, NewCos, and profit-share collaborations carry real risk under the proposed framework. While the license itself remains permitted, transactions establishing joint ventures with Chinese partners to conduct such activities are prohibited.
Foreign enterprises continue investing in China high tech sector
The restrictions intersect with established trade patterns where foreign enterprises continue investing in China’s high-tech sector. Data from the Global Times highlights that foreign investment in China’s high-tech sector increased by 33.8 percent year-on-year between January and September, while a survey by the US-China Business Council found that 95 percent of respondent companies consider their China operations “somewhat to very important for staying competitive globally.”
Enforcement mechanisms under the Treasury program include the power to compel divestment. Liability turns on what a U.S. person knew, had reason to know, or would have learned through a reasonable and diligent inquiry. U.S. companies holding pipeline deals with equity components or joint development arrangements are reviewing contracts ahead of the effective date in early 2027.
Common Questions on Outbound Investment Restrictions
Can a U.S. company still in-license a drug candidate from a Chinese biotech?
Yes. The license itself remains permitted, provided it does not include features such as licensor equity, NewCos, profit-share collaborations, or certain governance terms that would carry risk.
What is the deadline for public comments on the proposed rule?
Treasury is accepting public comments on the notice of proposed rulemaking until December 7, 2026, through regulations.gov under Docket No. TREAS-DO-2026-0595, according to Thompson Hine.
Which countries are added to the list of countries of concern?
The expanded program adds Cuba, Iran, North Korea, and Russia to the list of countries of concern alongside China, Fortune reported.
What penalties apply for violations of the Outbound Investment Security Program?
Treasury has the authority to compel the divestment of prohibited investments, and false statements to Treasury are subject to 18 U.S.C. § 1001.
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