US-China AI Competition Daily Briefing-
1. Capital Screening & Legal Framework: Treasury's COINS Act "Superintelligence" NPRM
Public analysis continues to mount following the U.S. Department of the Treasury's official publication of its Notice of Proposed Rulemaking (NPRM) implementing the Comprehensive Outbound Investment National Security Act (COINS Act):
- Systematic "Superintelligence" Reclassification: Legal audits of the proposed 31 C.F.R. Part 851 framework highlight that Treasury has formally replaced standard references to "AI systems" with "Superintelligence (SI) systems". The proposed rule virtually eliminates simple post-hoc notification safety valves for foreign AI investments, shifting equity allocations, joint ventures, and greenfield developments involving Chinese AI developers directly into the prohibited tier.
- High-Performance Computing (HPC) & Supercomputing Integration: The NPRM breaks out HPC and supercomputing into a dedicated standalone restriction tier. It explicitly prohibits U.S. capital commitments to foreign systems capable of providing
$\ge 100\text{ double-precision (64-bit) PFLOPS}$ or $\ge 200\text{ single-precision (32-bit) PFLOPS}$ of compute within a 41,600 cubic foot spatial footprint. - Public Comment Horizon: U.S. venture capital firms, private equity funds, and Limited Partners (LPs) are preparing formal position papers ahead of the December 7, 2026 public comment deadline.
2. Export Controls & Policy: Approaching the MOFCOM Consultation Deadline
As international law firms and cross-border tech enterprises review China's proposed revisions to the Catalogue of Technologies Prohibited or Restricted from Export (MOFCOM/MOST Announcement No. 48):
China MOFCOM Pre-Export Registration Gate
DRAFT CONSULTATION PERIOD PRE-EXPORT REGISTRATION COMMERCIAL API EXEMPTION
┌───────────────────────────────────┐ ┌───────────────────────────────────┐ ┌───────────────────────────────────┐
│ • Revisions open for public │ ──► │ • Interim rules MANDATORY since │ ──► │ • Cloud APIs, mobile apps, & │
│ comments through Nov 15, 2026 │ │ Oct 16, 2026 across 23 AI tech │ │ SaaS endpoints remain EXEMPT │
└───────────────────────────────────┘ └───────────────────────────────────┘ └───────────────────────────────────┘
- The November 15 Comment Threshold: Public consultations on the 40 proposed technology additions (including 23 in AI, 12 in Photovoltaics, and 5 in Biomedicine) enter their final two weeks, with comments due by November 15, 2026.
- Active Pre-Export Registration Gate: Industry compliance teams emphasize that while the draft catalogue undergoes final review, a mandatory temporary pre-export registration obligation remains active for transactions initiated after October 16, 2026. Chinese AI labs must secure pre-export clearance for outbound physical model weight transfers ($\ge 2\text{ Trillion}$ parameters or $\ge 10^{26}\text{ FLOPs}$ compute), autonomous agent swarms, and 10,000-card cluster scheduling IP.
- Maintaining Global Commercial APIs: The Ministry of Commerce reaffirms that providing AI model access overseas through cloud APIs, mobile apps, web portals, and SaaS platforms remains explicitly exempt from technology export controls, ensuring Chinese AI developers can monetize services globally as long as underlying model weights remain anchored to domestic servers.
3. Hardware Scaling & Ecosystem Co-Design: Ascend 950DT Megacluster Milestones
Industry tracking surrounding DeepSeek’s co-design relationship with Huawei highlights ongoing progress and hardware limits:
- CANN 9.20 & Lingqu Bus Validation: DeepSeek’s execution of a 10,000-card Ascend 950DT trial cluster serves as the primary real-world benchmark to validate whether Huawei’s CANN 9.20 software stack and Lingqu UnifiedBus interconnect can sustain multi-week gradient synchronization without driver crashes or memory degradation.
- Software-Hardware Co-Design: DeepSeek engineers continue utilizing the co-developed TileLang compiler layer to deploy custom operators (DeepGEMM, DeepEP), extracting up to 99.8% of theoretical peak matrix performance from Ascend engines while bypassing Nvidia CUDA dependencies.
- Packaging Bottlenecks at Ulanqab: Supply-chain assessments indicate that while site preparations for the 160,000-unit deployment in Ulanqab, Inner Mongolia are underway, high-bandwidth memory (HiZQ 2.0 / HBM) packaging capacity remains the primary physical constraint, requiring chip deliveries to fulfill in phased waves extending through 2027 and 2028.
Strategic Takeaway
The US-China AI dynamic is operating under a bipolar structural equilibrium. Washington is formalizing administrative capital screening (via Treasury's expanded COINS Act SI rules) and anti-distillation policy to protect Western technology, while Beijing is leveraging pre-export registration controls and sovereign hardware-software co-design (DeepSeek, Huawei, TileLang) to build a parallel, CUDA-independent computing stack.
The Notice of Proposed Rulemaking (NPRM) published by the U.S. Department of the Treasury establishes a new 31 C.F.R. Part 851 to formally implement Title VIII of the Comprehensive Outbound Investment National Security Act (COINS Act).
Replacing the temporary framework under 31 C.F.R. Part 850 (enacted under Executive Order 14105), Part 851 codifies and expands the Outbound Investment Security Program (OISP). The proposed rule transforms outbound capital screening from a executive program into a statutory regime aimed at restricting U.S. capital, executive management expertise, and institutional backing from flowing into sensitive foreign technology sectors.
1. Legal Architecture & Jurisdictional Scope
The proposed Part 851 broadens jurisdictional reach across covered entities, U.S. persons, and geographic regions:
COINS Act Outbound Screening Structure
COVERED US PERSONS COVERED TRANSACTIONS COVERED FOREIGN PERSONS
┌──────────────────────────────┐ ┌──────────────────────────────┐ ┌──────────────────────────────┐
│ • US Citizens & PRs │ │ • Equity & VC Deals │ │ • Entities in China, HK, │
│ • Domestic Entities │ ──► │ • Joint Ventures / Greenfield│ ──► │ Macau, Russia, Iran, │
│ • Controlled Foreign Subsid. │ │ • Debt w/ Equity Conversion │ │ North Korea, Cuba, & Ven. │
└──────────────────────────────┘ └──────────────────────────────┘ └──────────────────────────────┘
- Expanded Countries of Concern: Beyond mainland China, Hong Kong, and Macau, the proposed rule incorporates Russia, Iran, North Korea, Cuba, and Venezuela. A "covered foreign person" includes entities organized under the laws of these jurisdictions, maintaining their principal place of business there, or majority-owned/controlled by nationals or entities of these countries.
- Covered U.S. Persons & Parent Liability: Applies to U.S. citizens, green card holders, U.S.-incorporated entities, and foreign subsidiaries controlled or directed by U.S. parent organizations.
- Extension of "Knowingly Directing": The rule extends the liability trigger for U.S. officers, directors, and executives participating in non-U.S. entities. The "knowingly directing" prohibition—previously limited to prohibited transactions—now applies to notifiable technology transactions as well, mandating formal recusal procedures for U.S. personnel on foreign investment committees.
- Knowledge Standard: Treasury enforces a constructive knowledge standard requiring investors to conduct affirmative, documented "reasonable and diligent inquiry" into a target's supply chain, ownership stack, and technology end-uses prior to deal execution.
2. Sectoral Rules & Categorization Matrix
The proposed rule shifts several critical technology domains from notification-based oversight into outright prohibitions, while adding new sectors:
| Sector | Prohibited Transactions (Absolute Ban) | Notifiable Technology (Filing Required) |
| Artificial Intelligence / "Super Intelligence" (SI) | Development, engineering, or use of SI systems across covered foreign entities; virtually all covered foreign AI deals shift from notification to prohibition. | Severely restricted; limited to narrow commercial/civil AI systems that do not trigger SI or defense/surveillance thresholds. |
| Semiconductors & Microelectronics | Advanced logic (<14/16nm, 7nm), 3D NAND/DRAM, EDA design software, advanced DUV/EUV lithography, high-bandwidth memory (HBM), radiation-hardened ICs, and photonic ICs. | Legacy/mature logic nodes, standard packaging, and non-critical commercial manufacturing equipment. |
| HPC & Supercomputing | Development or operation of exascale supercomputers ($\ge 100\text{ PFLOPS}$ FP64 / $\ge 200\text{ PFLOPS}$ FP32). | High-bandwidth, low-latency interconnect tools and software used in commercial HPC datacenters. |
| Biotechnology (New Field) | Gene editing platforms, brain-computer interfaces (BCIs), biomanufacturing equipment, computational bioinformatics tools, and equity deals with entities on the Pentagon's 1260H List or BIOSECURE Act List. | Research-grade lab automation or commercial drug discovery tools meeting non-restricted licensing criteria. |
| Quantum & Hypersonics | Quantum computing hardware, algorithm development, dilution refrigerators, and hypersonic delivery systems ($\ge\text{Mach 5}$). | Secondary commercial quantum sensing or non-military hypersonic software modeling. |
3. Financial Deal Mechanics & Carve-Outs
The NPRM specifically targets transactions that convey intangible benefits—such as board seats, strategic endorsement, technical advisory, and operational networking:
COVERED TRANSACTIONS (Restricted) EXCEPTED TRANSACTIONS (PNC / Exempt)
┌──────────────────────────────────────────────┐ ┌──────────────────────────────────────────────┐
│ • Direct Venture Capital / Private Equity │ │ • Publicly Traded Securities (Listed Index) │
│ • Greenfield Investments & Joint Ventures │ │ • Passive LP Commitments (Strictly Non-Ctrl) │
│ • Convertible Debt & Equity-Like Financing │ │ • Pure Commercial Cash Tech Licensing │
│ • Directing Foreign Entity Transactions │ │ • Intracompany Capital (Strict Maintenance) │
└──────────────────────────────────────────────┘ └──────────────────────────────────────────────┘
- Covered Transaction Structures: Direct venture capital allocations, private equity buyouts, greenfield expansions, joint ventures (JVs)—defined broadly by a plain-English capital/profit-sharing test regardless of entity jurisdiction—and convertible debt instruments.
- Targeted vs. Passive Capital (Exceptions):
- Excepted: Publicly traded securities (mutual funds, ETFs) lacking governance rights beyond standard minority protections, passive Limited Partner (LP) commitments where the U.S. investor holds no management control or investment committee seats, and pure technology licensing contracts (e.g., cash-based drug or software licensing without equity ties).
- Limited Partner (LP) Exposure: U.S. LPs committing capital to foreign-managed private equity or VC funds face regulatory exposure under 31 C.F.R. Part 851 if the fund invests in prohibited Chinese technology firms, unless the LP obtains binding, non-directed contractual covenants.
4. Enforcement, Penalties & Administrative Timeline
Treasury’s Office of Investment Security enforces compliance using administrative and monetary remedies:
- Civil Fines & Mandatory Unwinding: Because Title VIII of the COINS Act relies on civil enforcement mechanisms, criminal penalty provisions under Part 850 are updated.
Civil monetary penalties up to the statutory maximum set by the International Emergency Economic Powers Act (IEEPA) or double the value of the transaction apply. Treasury retains authority to compel the divestment or unwinding of completed non-compliant investments. - Regulatory Timeline: The public comment window for the proposed Part 851 rules remains open through December 7, 2026. Final implementing regulations are expected ahead of the statutory deadline in late Q1 2027, during which time the existing Part 850 rules remain fully enforceable.
By Jugo Ikeji Uju
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