Two US regimes affecting Chinese AI companies advanced in parallel during 2024. One is the export control regime applied to advanced computing and semiconductors since October 2023, updated during 2024. The other is the outbound investment rulemaking: the Treasury issued draft rules on 21 June 2024, with the final rule still in preparation. The first governs where technology and products flow; the second governs where capital flows. The intersection is where AI companies most often underestimate exposure.
Chips and compute
Export controls target advanced computing chips, related equipment and technology. Direct exports require licences, which most companies already understand. The overlooked part is the indirect route. Transhipment through a third country, purchasing by an overseas subsidiary and renting foreign cloud compute may all fall within review.
Cloud services are not a natural workaround. Remote access to controlled compute can be treated as a controlled activity under the rules. Moving training jobs to an overseas node does not move the jurisdictional connection offshore with them.
Models and technical services
Whether model weights, training services and technical support are controlled depends on the specific rules and the transaction structure. Deploying a model abroad and serving customers through a foreign entity does not necessarily sever the jurisdictional link. US personnel involved in research, use of US technology or equipment, and cooperation with US customers all require screening in contracts and staffing arrangements.
Technical services are especially ambiguous. A remote debugging session, a model architecture briefing or a training workshop may fall within technical support. The test looks at substance and recipient, not the label on the contract.
Investment structures
The outbound investment rules target specified sectors of concern. Investment by Chinese entities into US or third-country vehicles, joint ventures and greenfield projects may fall within notification or prohibition. Structure design cannot look only at shareholding percentages; it must also consider actual control, board seats, technology licensing and data access.
Multi-layer structures do not automatically dilute jurisdiction. The rules generally look through to substantive control and interest. A nominal minority stake coupled with a technology licence can still be a sensitive arrangement.
Due diligence and exit
Before a transaction, check whether the target’s business, customers and supply chain involve controlled technology, and whether founders or major investors appear on restricted lists. During the transaction, allocate closing conditions, representations and government-approval risk clearly. Exit also needs assessment: divestment, transfer and liquidation may trigger the rules, and exit cannot be assumed to be free.
The difficulty in due diligence is information availability. The provenance of a foreign target’s technology, its customer base and end uses often come only from questionnaires and interviews. Questionnaire design should separate “what technology is used” from “where the technology came from”, because the rules differ.
A screening mechanism companies can build
Split the business into technology, customer and capital dimensions, and mark the jurisdictional connection for each. The technology dimension covers chips, models, tools and provenance; the customer dimension covers sector, use and end user; the capital dimension covers investor identity, ownership and control. Only when all three are clear can a transaction be assessed for licensing, notification or restructuring.
At contract level, add change-of-control provisions covering controls and sanctions, suspension rights and allocation of responsibility. At record level, keep the screening process and its basis for later review or counterparty diligence. Screening is not a one-off conclusion; it must be rerun when the rules change.
For multi-jurisdiction analysis and transaction structuring, see our multi-jurisdiction service and commercial contracts service; for entity establishment and market access, see business licensing.
This article is based on the US export controls on advanced computing and semiconductors applied from October 2023 and updated in 2024, and on the US Treasury’s draft outbound investment rules of 21 June 2024. It is for reference only and does not constitute legal advice.