The Treasury Department proposed new rules Thursday to curb U.S. investment in Chinese biotechnology – just as American drugmakers have been increasingly turning to the booming sector to develop their next blockbuster products.

The proposal, which if finalized would be the first restrictions on foreign investment in the pharmaceutical industry, prohibits transactions covering “certain bio-derived compounds or materials,” biomanufacturing equipment and facilities, and technology related to biological design and sequencing. It also bans investment in software or equipment for “automated scientific discovery or experimentation.”Brain-computer interfaces and bioinformatics tools would also be subject to the investment prohibition.

PhRMA, the lobbying group for major drugmakers, has advocated against limits on investment and dealmaking in China, arguing they won’t slow down Beijing’s biotech sector.

“American patients want to have access to the most cutting-edge treatments as quickly as possible, and the ecosystem includes a lot of promising science from China right now,” Jocelyn Ulrich, PhRMA’s vice president for policy and research, told POLITICO.

Legislation passed in December expanded limits on U.S. investment into sensitive technologies and industries located in “countries of concern,” including China. Treasury has the discretion to add biotech to the list of sectors for which certain investment transactions are either prohibited or required to be reported to the department.

Some lawmakers and China hawks have been pushing the Trump administration to clamp down on American capital surging eastward given Beijing’s stated goal of dominating global biotech by 2030. A third of new drugs under development globally originate in China.

Treasury's proposal comes after a months-long lobbying push by the drug industry against stringent investment restrictions. Pharma giants and biotech investors have increasingly turned to Chinese drug developers to replenish product pipelines and to finance promising early-stage molecules, with companies like Pfizer, Bristol Myers Squibb and Roche striking multibillion-dollar licensing deals this year with Chinese firms.

Some agreements include terms allowing the multinational companies and the Chinese firms to develop and commercialize the drug candidates together — areas of drug development that are crucial to Beijing’s goal of dominating the biotech sector globally.

The rule doesn’t address licensing deals, a Treasury official told reporters Thursday. The official declined to clarify whether or how it would apply to co-development and co-marketing agreements.

The Treasury initiative, which by law must be finalized by March, also follows moves by the Chinese government to tighten its export regulatory framework for biopharma technologies to maximize China’s competitive edge against foreign rivals.

Beijing has proposed a ban on the sale to foreign buyers of biopharma innovations, including domestic cell-and-gene therapy technologies, China’s Ministry of Commerce said in a statement last week. The proposed rules will instead limit foreign access to licensing agreements that mirror restrictions by other major economies but won’t hamper “normal international technological exchange cooperation,” the statement said.

A U.S. drug industry lobbyist, granted anonymity to speak candidly, said China’s proposal appeared to give Beijing “some levers … so that they are then ready to retaliate if they need to,” if Washington targeted biotech deals for greater restrictions.

The U.S. and Chinese regulatory moves underscore how Beijing and Washington view cross-border biopharma investment as a potential threat to the stability of supply chains for essential materials and products like medicines.

The Trump administration wants to avoid creating new supply chain vulnerabilities as it scrambles to reduce its dependence on China’s global monopoly of critical minerals, which Beijing weaponized in the U.S.-China trade war last year. China’s leader, Xi Jinping, launched a campaign in 2022to wean the country from dependence on foreign tech and imports that could become pressure points in future trade disputes.

Beijing’s proposed biotech export curbs were part of a package of new restrictions on the foreign sale of some artificial intelligence and photovoltaic technologies essential to solar panels. And they underscore Beijing’s determination to dominate the rapidly developing biopharma sector by limiting access to domestic innovations to potential foreign competitors.

“It fits a broader recent pattern of tightening controls over technology exports, outbound investment and data, and people — talent and capital exit restrictions — all under the banner of industrial and technological security,” said Yanzhong Huang, an expert on Chinese health politics at the Council on Foreign Relations.

That aligns with Beijing’s objective — spelled out in a new five-year plan for China’s pharmaceutical industry released last month — to groom its biopharma sector into becoming a “national pillar industry” along with semiconductors, electrical batteries and robotics. Jinping has made “the development of industries of the future” including biopharma a centerpiece of his government’s drive to outpace traditional foreign tech rivals including the U.S. and the European Union.

“The dominant logic is strategic retention of core capabilities,” said Huang. Barring foreign ownership “prevents ‘uprooting’ transfers of foundational intellectual property while still allowing firms to monetize them.”Members of both parties have pushed legislation this year to make biotech a sector covered by the December law, known as the COINS Act. Michigan Republican John Moolenaar, chair of the House’s select committee on China, has urged Treasury Secretary Scott Bessent to make biotech a prohibited technology and to scrutinize licensing and commercialization deals, among other transactions.

Ulrich at PhRMA said most deals to date remain licensing arrangements in which the American company controls the molecule while the Chinese firm retains the rights to develop the drug for patients in China.

“As long as U.S. companies are able to develop, run clinical trials in America, and bring it through the FDA process, we don't see that there is a national security concern with that,” Ulrich said.

The industry has instead urged the administration to do more to make the U.S. sector more competitive, such as speeding up the process for launching early-stage clinical trials domestically. The Department of Health and Human Services announced such an effort, dubbed “Operation Trialblazer,” in June.

“I just think it's too simplistic,” John Crowley, CEO of the Biotechnology Innovation Organization, told reporters in May of investment limits. “I think the effectiveness may not be as significant as people think by trying to restrict outbound flows of capital or inbound flows of technology.”“If a Chinese lab comes up with a cure to a rare pediatric cancer, how in the world do we tell American citizens, American companies, you can't touch that?” he added. Treasury will take public comment on the proposal until Dec. 7.