US Moves to Add Biotech to Outbound Investment Curbs on China, and Beijing Warns of Countermeasures Against a 'Discriminatory' Plan

The technology rivalry between the United States and China is widening into biotechnology, as Washington moves to restrict American investment in Chinese biotech companies and Beijing threatens to retaliate.

The US Treasury Department on Thursday, October 22, proposed expanding its Outbound Investment Security Program, which limits investments by American individuals and companies in sensitive technologies in countries it designates as foreign adversaries. The proposal would add biotechnology as a newly targeted sector and tighten existing restrictions on investment in artificial intelligence, quantum information technologies, high-performance computing and supercomputing, and hypersonic systems in China, Russia and North Korea.

Treasury Secretary Scott Bessent pushed for the inclusion of biotechnology, according to reports. In a press release, the Treasury said the changes would strengthen the programme and prevent adversaries from using American investment to build critical technologies.

Beijing pushes back

China's Ministry of Commerce responded on Saturday, October 24, saying the proposal widened China-related restrictions in a discriminatory way and stretched the concept of national security too far. The ministry said the plan would damage bilateral economic ties, that China would monitor developments, and that it reserves the right to take countermeasures, without specifying what those might be.

The statement was reported by China's state-run Global Times and cited by US and international media.

How the programme works

The Outbound Investment Security Program, which took effect in January 2025, was created to stop American capital and expertise from helping countries of concern develop technologies with military applications. It prohibits some types of investment, such as stakes in companies developing advanced AI for military use, and requires notification of others.

Unlike export controls, which restrict the sale of technology, outbound investment rules restrict the flow of money, including venture capital, private equity and joint ventures. They reflect concern in Washington that American investors have funded Chinese companies that went on to strengthen China's military and technological capabilities.

Why biotech

Biotechnology has become a strategic priority for both countries. China has built a large and fast-growing biotech industry, with companies developing new drugs, gene therapies and biological manufacturing capabilities. Chinese biotech companies have increasingly licensed experimental drugs to Western pharmaceutical companies, and Chinese contract research and manufacturing firms play important roles in global drug supply chains.

US lawmakers and officials have raised concerns about genetic data, the potential military applications of biotechnology, and dependence on Chinese suppliers for drug ingredients and manufacturing. Congress has also pursued Biosecure legislation aimed at restricting federal contracts with certain Chinese biotech companies.

Adding biotech to outbound investment restrictions would make it harder for American venture capital and private equity firms to invest in Chinese biotech startups, potentially slowing the flow of capital to the sector.

The comment period

The proposal must go through a public comment period before the Treasury issues a final rule. Industry groups, investors and companies are expected to weigh in on the scope of the restrictions, including which biotech activities would be covered.

Defining the scope will be complex. Biotechnology spans a wide range of activities, from drug discovery and medical devices to agricultural biotechnology and industrial biology. Overly broad rules could affect legitimate medical research and commercial activity, while narrow rules might fail to address security concerns.

Impact on global pharma

The restrictions could affect global pharmaceutical companies that have formed partnerships with Chinese biotech firms. In recent years, Western drugmakers have signed billions of dollars of licensing deals for drugs discovered in China, attracted by the speed and cost-effectiveness of Chinese research.

While licensing deals are distinct from equity investments, tighter scrutiny of US-China biotech ties could make companies more cautious about such arrangements.

What it means for India

India could benefit from tighter US restrictions on Chinese biotech. Indian pharmaceutical companies, contract research organisations and contract manufacturers have positioned themselves as alternatives to Chinese suppliers, part of the broader "China plus one" strategy adopted by global companies seeking to diversify supply chains.

Indian contract development and manufacturing companies have reported growing interest from Western clients seeking to reduce reliance on China. Further US restrictions could accelerate that trend, though Indian companies will need to demonstrate the capacity, quality and innovation to capture the opportunity.

A broader technology contest

The biotech proposal is the latest move in a long-running technology contest between the two countries. The United States has restricted exports of advanced semiconductors and chipmaking equipment to China, and China has responded with restrictions on exports of critical minerals and rare earths. Both countries have sought to build domestic capabilities and reduce dependence on each other.

The escalation comes as the two countries have also sought at times to stabilise trade relations. China's warning of countermeasures suggests the proposal could complicate those efforts.

Industry reaction

US investment groups and biotech companies have expressed concern in the past that broad restrictions could harm American competitiveness by cutting off access to Chinese innovation and partnerships. Some argue that collaboration with Chinese researchers and companies accelerates drug development and lowers costs, benefiting patients. Others, including national security officials and some lawmakers, argue that the risks of transferring sensitive capabilities outweigh the benefits.

The comment period will give these groups a chance to shape the final rule. The Treasury has typically refined its proposals in response to feedback, clarifying definitions and exemptions to reduce unintended consequences.

China's options

China has a range of possible countermeasures. In past disputes, it has added US companies to an unreliable entity list, restricted exports of critical minerals, launched investigations into American companies operating in China and imposed tariffs. The commerce ministry's statement did not specify which tools it might use, leaving room for a calibrated response depending on the final shape of the US rule.

What comes next

The Treasury will review comments before issuing a final rule, a process that could take months. China's response, including any countermeasures, will be closely watched by investors and companies with exposure to both markets.

For the global biotech industry, the proposal adds to uncertainty about the future of US-China collaboration in one of the most dynamic areas of science and business, and could reshape where capital, research and manufacturing flow in the years ahead. For investors, the proposal adds another layer of regulatory risk to cross-border deals involving Chinese technology companies, which may slow transactions even before a final rule takes effect.