US-China AI Competition Daily Briefing
1. Capital Screening & Legal Framework: Final Month of Public Comments for Treasury's COINS Act Rules
As the December 7, 2026 public comment deadline approaches, global private equity firms, venture capital funds, and cross-border tech platforms are preparing formal position papers on the U.S. Department of the Treasury's Notice of Proposed Rulemaking (NPRM) implementing Title VIII of the Comprehensive Outbound Investment National Security Act (COINS Act).
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. │
└──────────────────────────────┘ └──────────────────────────────┘ └──────────────────────────────┘
- Systematic Shift to "Superintelligence" Prohibitions: The proposed 31 C.F.R. Part 851 framework formally replaces standard references to "AI systems" with "Superintelligence (SI) systems". The rule eliminates simple post-hoc notification safety valves for foreign AI investments, moving virtually all covered equity allocations, joint ventures, and greenfield developments involving Chinese AI developers directly into the prohibited tier.
- High-Performance Computing (HPC) Benchmarks: The proposed rule explicitly prohibits U.S. capital commitments to foreign supercomputing 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.
- Expanded Executive Scope: The prongs governing U.S. personnel who "knowingly direct" foreign investments—previously limited to prohibited deals—have been extended to notifiable technology transactions as well. This requires U.S. officers, directors, and investment committee members at non-U.S. entities to enforce formal recusal procedures on all covered deals.
2. Export Controls & Policy: Countdown to MOFCOM Announcement No. 48 Consultation Deadline
International legal and trade compliance teams are entering the final two weeks of the public comment window for China’s proposed revisions to its Catalogue of Technologies Prohibited or Restricted from Export (MOFCOM/MOST Announcement No. 48), which closes on November 15, 2026.
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 │
└───────────────────────────────────┘ └───────────────────────────────────┘ └───────────────────────────────────┘
- Scope of the 40 Proposed Controls: The draft catalog adds 40 technologies across artificial intelligence (23 items), photovoltaics (12 items), and biomedicine (5 items). Of these, 14 are Prohibited (banned outright) and 26 are Restricted (requiring state licensing).
- Granular AI Triggers: A foundation model falls under the Restricted Tier if it hits any one of three thresholds: cumulative pre-training compute $\ge 10^{26}\text{ FLOPs}$, parameter count $\ge 2\text{ Trillion}$, or a Global Top-10 Position on public benchmark rankings or call volume at the time of export. The draft also restricts autonomous AI agent frameworks (e.g., $\ge 60$ concurrent agents or $\ge 20$ subtask planning chains) and 10,000-card cluster scheduling IP.
- Mandatory Interim Registration Enforced: While public consultation continues through mid-November, a mandatory temporary pre-export registration obligation has been active since October 16 for all covered transactions initiated after that date.
- The Commercial API Exemption: Official MOFCOM guidance reaffirms the boundary: providing global access to models deployed in China via cloud APIs, web portals, mobile apps, or SaaS platforms does not constitute a technology export, allowing Chinese AI firms to commercialize services globally as long as underlying weights remain anchored within domestic data centers.
3. Hardware Scaling & Ecosystem Co-Design: Ascend 950DT Cluster Testing
Industry monitoring regarding DeepSeek’s co-design partnership with Huawei highlights ongoing software optimizations and physical supply constraints:
- CANN 9.20 & Lingqu Bus Validation: DeepSeek’s execution of a 10,000-card Ascend 950DT pod trial continues to serve as the primary validation phase for Huawei’s CANN 9.20 software stack and Lingqu UnifiedBus interconnect under sustained pre-training stress.
- Software-Hardware Co-Design via TileLang: By utilizing the co-developed, open-source TileLang compiler layer, DeepSeek engineers compile custom operators (DeepGEMM, DeepEP) directly to Ascend matrix engines, bypassing Nvidia CUDA dependencies to extract near-peak matrix execution from domestic silicon.
- Packaging Bottlenecks: Industry supply-chain tracking indicates that high-bandwidth memory (HiZQ 2.0 / HBM) packaging capacity remains the primary physical bottleneck, requiring chip deliveries for DeepSeek's planned 160,000-unit deployment in Ulanqab, Inner Mongolia to fulfill in phased waves extending across 2027 and 2028.
Strategic Takeaway
The US-China AI dynamic continues to operate under a bipolar structural equilibrium. Washington is using capital screening (via Treasury's proposed Part 851 COINS Act rules) and anti-distillation policy to protect Western capital and proprietary software models, while Beijing is deploying pre-export registration controls and sovereign hardware co-design (DeepSeek, Huawei, TileLang) to establish a CUDA-independent global computing ecosystem.
The Notice of Proposed Rulemaking (NPRM) published by the U.S. Department of the Treasury establishes a new 31 C.F.R. Part 851 framework 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 (originally enacted under Executive Order 14105), Part 851 codifies and expands the Outbound Investment Security Program (OISP).
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 ($\ge 50\%$) or 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 (including foreign branches), and foreign subsidiaries directed or controlled 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 critical technology domains—most notably Artificial Intelligence—from a two-tiered "prohibited vs. notifiable" regime into an absolute ban framework:
| 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. Eliminates the prior compute-threshold and end-use carve-outs; virtually all covered foreign AI deals shift to prohibited. | Discontinued for SI systems; transactions that previously fell under notification are now captured by the prohibition. |
| Semiconductors & Microelectronics | Advanced logic (<14/16nm, 7nm), 3D NAND/DRAM, EDA software, high-bandwidth memory (HBM >2 GB/s per mm²), radiation-hardened ICs, photonic ICs, advanced DUV/EUV lithography tools, and memory densities $>0.20\text{ Gb/mm}^2$. | Legacy/mature logic nodes, standard packaging, non-critical commercial manufacturing equipment, and non-prohibited equipment used in chip design or fabrication. |
| HPC & Supercomputing | Development, installation, sale, or operation of supercomputers capable of providing $\ge 100\text{ double-precision (64-bit) PFLOPS}$ or $\ge 200\text{ single-precision (32-bit) PFLOPS}$ within a 41,600 $\text{ft}^3$ spatial envelope. | High-bandwidth, low-latency interconnects (system-on-chip, scale-up/scale-out networks) used in commercial HPC systems. |
| Biotechnology (Newly Added Sector) | Gene editing platforms, brain-computer interfaces (BCIs), biomanufacturing equipment, sequencing tech, 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, critical operation components (dilution refrigerators, pulse tube cryocoolers), and hypersonic delivery systems ($\ge\text{Mach 5}$). | Guidance sensors, research/testing software, and specialized materials for hypersonic systems. |
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 │ │ • De Minimis Deals (<$50,000 Threshold) │
└──────────────────────────────────────────────┘ └──────────────────────────────────────────────┘
- 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) carrying no 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 commercial technology licensing contracts (cash-based software or IP licenses without equity ties).
- De Minimis Exception: The NPRM establishes a $50,000 transaction threshold. Deals under this total value are exempt, provided they are not structured as a series of connected transactions to circumvent the limit.
- Limited Partner (LP) Exposure: U.S. LPs committing capital to foreign-managed private equity or VC funds face direct 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: Civil monetary penalties up to the statutory maximum set by the International Emergency Economic Powers Act (IEEPA) or double the value of the underlying transaction apply. Treasury retains full authority to compel the divestment or unwinding of completed non-compliant investments.
- Pre-Transaction Advisory Opinions: Pursuant to COINS Act statutory mandates, Part 851 introduces a formal administrative mechanism allowing interested parties to request non-binding feedback from Treasury regarding whether a proposed deal constitutes a prohibited transaction.
- Regulatory Timeline: The public comment window for the proposed Part 851 rules remains open through December 7, 2026. Under the statutory mandate of the COINS Act, Treasury must issue final implementing regulations setting an effective date by mid-March 2027, during which time existing Part 850 regulations remain fully active and enforceable.
By Jugo Ikeji Uju
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