China Threatens Countermeasures as US Treasury Adds Biotechnology to Investment Curbs

The United States Treasury Department published a Notice of Proposed Rulemaking on October 22, 2026 that does more than adjust an existing screening programme. It uses authority delegated by Congress to add biotechnology as a sixth restricted technology sector and to widen what counts as a covered high-performance computing or hypersonic transaction under the Outbound Investment Security Program. Two days later, Beijing answered with a warning.

China's Ministry of Commerce said on October 24, 2026 that it firmly opposes the proposal, calling it discriminatory and a textbook case of overstretching the concept of national security. A ministry spokesperson said Beijing reserves the right to take corresponding measures, without specifying what those measures would be. The statement was carried by Xinhua and matched by a Reuters dispatch from Beijing the same day.

The legal foundation is the Comprehensive Outbound Investment Security Act, known as the COINS Act, which passed as part of the Fiscal Year 2026 National Defense Authorization Act and became law on December 18, 2025. The statute names five sectors where Treasury may set technical parameters: semiconductor technologies and microelectronics, artificial intelligence systems, quantum information technologies, high-performance computing and supercomputing, and hypersonic systems. It also lets the Treasury Secretary add technologies beyond that list, in consultation with congressional committees and subject to notice and comment. That is the door the October 22 proposal walked through.

Until a final rule takes effect, the programme's earlier phase stays in force. Reuters reported on October 24, 2026 that the programme had already restricted certain US investments involving China in semiconductors, quantum technologies and artificial intelligence. Secretary Scott Bessent said the new proposal would strengthen the existing Outbound Investment Security Program to prevent adversaries from using US investment to develop critical technologies that threaten US national security. Assistant Secretary for Investment Security Christopher Pilkerton said the rules address risks that arise when foreign adversaries try to benefit from US investment in key technology sectors.

Key Facts

Treasury issued the NPRM on October 22, 2026, implementing direction from Congress under the COINS Act. The Act requires US persons to notify Treasury of certain transactions involving covered foreign persons engaged in notifiable technologies, and prohibits US persons from certain other transactions involving covered foreign persons engaged in prohibited technologies. The proposal adds biotechnology as a sixth sector using the Secretary's discretionary authority and expands coverage of high-performance computing and hypersonic systems within the five statutory categories. The NPRM also sets out definitions, the scope of covered foreign persons, excepted transactions, technical specifications, notification information, non-binding feedback requests, the knowledge standard and reasonable diligence inquiry, and conduct treated as violations with applicable penalties.

Reuters reported on October 24, 2026 that Beijing's commerce ministry urged the United States to stop expanding restrictions on American investments in China, saying the proposed rule on sensitive technologies would disrupt trade ties. The ministry said the proposal discriminatorily widened China-related investment restrictions and intensified curbs, that it would damage bilateral economic ties, and that it ran counter to consensus reached by the countries' presidents, who have met twice in the past six months.

Xinhua reported on October 24, 2026 that a MOFCOM spokesperson voiced grave concern and firm opposition, saying the proposed rules run counter to the important consensus reached by the two heads of state, disrupt normal economic and trade cooperation between Chinese and US enterprises, and undermine the international economic and trade order. The spokesperson said US restrictions on investment in China would not only harm bilateral cooperation but also hurt the interests of US firms, adding that investing in China is investing in the future given the country's super-large market and its consumption and investment potential.

Inside BCI reported on October 24, 2026 that brain-computer interfaces sit in the rule's prohibited tier with no end-use limit and no technical threshold, while quantum sensing is prohibited only where meant for military, government intelligence or mass-surveillance use. Biotechnology has no notify-only category, and the $50,000 minimum that exempts small deals applies only to transactions that must be notified, so direct biotech deals of any size would be covered. Other prohibited biotechnologies include pharmaceuticals made or modified using biological systems, biomanufacturing equipment, biological sequencing, bioinformatics tools and laboratory automation. Civil penalties could reach the greater of $250,000 adjusted for inflation or twice the value of the transaction, so a $10 million investment could draw up to $20 million, and the Treasury Secretary could also order divestment.

Countries of concern are China including Hong Kong and Macau, Cuba, Iran, North Korea and Russia. Exceptions include buying publicly traded shares unless governance rights are gained, limited partner commitments of $2 million or less, pre-existing binding capital commitments, and bank lending and underwriting; licensing and supply contracts fall outside the rules unless used to evade them. Comments are due December 7, 2026, and the COINS Act gives Treasury 450 days from enactment to issue regulations.

Analysis

The apparent symmetry of the two statements hides an asymmetry of scope. The Treasury Department said on October 22, 2026 that the measures do not only cover China and are intended to stop US capital from supporting foreign adversaries' development of dual-use strategic technologies that could threaten national security. The list of countries of concern runs from China, Hong Kong and Macau to Cuba, Iran, North Korea and Russia. In practice the compliance burden lands hardest on deals with Chinese counterparties, because that is where the deepest pool of target companies sits, and both governments describe the dispute in exactly those terms.

What this really means is that the policy frontier has moved from goods to capital. Export controls police the sale of chips, tools and software across a border; outbound investment screening polices the wiring of money into a company's cap table, which is harder to observe and easier to route through intermediaries. Adding biotechnology is the substantive escalation in this proposal, because the sector has no notify-only category. Brain-computer interfaces are prohibited outright, with no end-use limit and no technical threshold, and the $50,000 small-deal minimum does not rescue direct transactions of any size.

The volumes are not trivial, though they are concentrated. Treasury cites PitchBook data showing that almost 230 US-based investors completed about 300 initial and follow-on investments in the brain-computer interface sector. Because commitments of $2 million or less as a limited partner are excepted, the rule nudges institutions toward fund structures rather than direct stakes, and the carve-out for publicly traded shares unless governance rights are gained preserves passive exposure. That is a deliberate design choice: it narrows the channel rather than closing it, and it leaves room for the final rule to tighten or loosen the aperture.

Why It Matters

For companies, the calendar matters more than the rhetoric. Comments close on December 7, 2026, and until a final rule sets an effective date the 2024 rules covering semiconductors, quantum and artificial intelligence remain in force. Deals signed in biotechnology today are not yet caught by a prohibitive standard, but the notification architecture, the knowledge standard and the reasonable diligence inquiry described in the NPRM show firms what they will eventually have to document. Compliance teams that wait for the final rule will end up building records retroactively, which is the expensive way to do it.

For the wider relationship, the exchange shows how quickly a technical rulemaking turns into a diplomatic event. Beijing frames the proposal as a breach of consensus reached by the two presidents, who have met twice in the past six months, and as a politicization and weaponization of economic and trade issues. Washington frames it as a national security safeguard that applies to several countries. Both readings can be advanced at the same time, which is why the comment file rather than the press release will decide how wide the final rule turns out to be.

Next Up

Treasury will take comments through December 7, 2026 and then draft final implementing regulations. The COINS Act gives the department 450 days from the December 18, 2025 enactment to issue those regulations, and the final rule will set the effective date. Investors can seek a national interest exemption case by case, and the Treasury Secretary retains authority to order divestment where violations are found.

MOFCOM said it will closely follow further developments and reserved the right to take corresponding measures. What those measures are, and whether they arrive before or after Treasury publishes a final rule, is the open question. Companies on both sides now have a comment deadline, a statutory clock and an unresolved threat to plan around.