Defense Bill Would Restrict US Investment in China

Congressional leaders released on Sunday the final version of the National Defense Authorization Act, which includes restrictions on U.S.-based investors making investments in China. 

The final version of the bill, spanning more than 3,000 pages, would authorize more than $900 billion for the U.S. military budget. Also Included in the wide-ranging legislation is another bill, the Comprehensive Outbound Investment National Security Act, which would restrict U.S. entities investing in China. 

“President [Donald] Trump has made clear the past few decades of investments propping up Communist China’s aggression must come to an end, and this bill includes important guardrails to protect America’s long-term investments, economic interests, and sensitive data,” said House of Representatives Speaker Mike Johnson, R-Louisiana, in a statement.  

The Comprehensive Outbound Investment National Security Act would establish a framework to block U.S. investments in certain sectors of China’s military and economy, with the goal of strengthening U.S. national security. The legislation imposes sanctions on designated Chinese entities; requires U.S. investors to notify authorities about certain transactions; and prohibits investments in sectors critical to China’s military, intelligence and surveillance capabilities. Lawmakers say the measure aims to stop U.S. dollars from supporting technologies and industries that could bolster the Chinese Communist Party’s strategic ambitions.  

On January 2, the U.S. Department of the Treasury issued a final rule restricting outbound investments in China. This rule enforced an executive order issued by former President Joe Biden, one which declared a national emergency in response to threats from certain countries, including China, that aim to develop or use sensitive technologies and products vital to military, intelligence, surveillance or digital capabilities. 

“The NDAA language codifies the existing Treasury [rule] issued in January 2025, but with a few more teeth,” says H.K. Park, who leads the outbound investment screening practice at risk management firm Crumpton Global. “The new language authorizes the Treasury to add more sectors in the future beyond semiconductors and quantum computing, for example. It also empowers the Treasury to investigate any transactions [for which] investors failed to notify.” 

According to Park, there are many provisions in the bill that depict China as a military adversary, whereas the recent U.S. National Security Strategy issued by the White House does not. 

“Given the range of views and the volatility of U.S.-China relations, we are helping investor clients prepare for all regulatory and reputational risks emanating from the federal government, state governments, activist groups and commercial competitors,” he says.  

An earlier version of the bill passed the House in September by a vote of 231 to 196. A notable exclusion in the final version of the legislation was renaming the Department of Defense to the Department of War.  

The final version also costs $8 billion more than the initial tab. The expansive expenses also include a nearly 4% pay increase for U.S. troops and $400 million in reauthorized funding for Ukraine.  

Lawmakers have debated the defense budget for weeks and hope to quickly pass the bill before the end of the year.  

“This is an important step toward ensuring the United States remains the world’s leader in advanced technology,” said Senator Elizabeth Warren, D-Massachusetts, in a statement. “Our bipartisan bill will help ensure that we develop the most sensitive and cutting-edge technology here in America rather than supercharge its development in countries that do not share our values.”