I. Executive Summary
China has now moved decisively to tighten state control over outbound investment. With the State Council’s Regulations of the State Council on Outbound Investment (State Council Decree No. 837)1 (the Rules) set to take effect on July 1, 2026, China has created its clearest legal basis yet to review, restrict, unwind and penalize overseas transactions involving Chinese investors where national security, technology, data or other strategic interests are at stake.
For multinational companies, private equity and venture capital firms, technology companies, and cross-border dealmakers, the significance of the new rules is substantial. Although the Rules sit within China’s existing outbound direct investment (ODI) framework, they go well beyond refining the administrative filing requirements. They reflect a broader policy shift under which China views outbound investment increasingly not only as a means of capital deployment, but also as a potential channel for the transfer of strategic assets, sensitive technology, data, expertise and talent in ways that may affect national security and broader state interests.
II. An Overview of the New Outbound Investment Rules
The Outbound Investment Rules are the first State Council-level administrative regulations governing outbound investment rather than ministerial or departmental rules. They are intended to establish a more unified and comprehensive regulatory framework for outbound investment by China-based investors including enterprises, other organizations and individual residents.
Outbound investment is broadly defined to include the direct or indirect acquisition of the ownership, control, management rights or other interests in overseas enterprises or assets, including through capital contributions, financing or guarantees. The Rules provide that China seeks to promote high-standard opening-up and higher-quality outbound investment while balancing development and security. Under the Rules, investors retain autonomy in making investment decisions and must bear their own risks and returns. They are also required to comply with PRC law, all applicable international norms and local laws, act in good faith and avoid harming national security, public interests, market order, labor rights or the environment.
Investors must continue to complete the required approval, filing, reporting and cross-border fund registration procedures. They must also comply with the other applicable PRC regulations including export controls, technology transfer restrictions, cross-border data flow, cybersecurity reviews, tax administration, antitrust reviews and state-owned asset supervision.
A central feature of the Rules is the introduction of a more formalized national security review and risk-control regime. For the first time, the Rules establish a national security review system for outbound investments, as well as the transfer or disposal of assets and interests, that affect or may affect national security. The relevant authorities, including the State Council’s investment and commerce departments, may also formulate and adjust policies classifying outbound investments as encouraged, restricted or prohibited based on the economic needs, the risk in destination countries or regions, and broader policy considerations. Investors and their overseas invested enterprises are required to strengthen their corporate governance, compliance, internal controls, workplace safety and emergency response to better identify and manage operational and geopolitical risks.
In summary, the Rules reflect a dual policy approach. On the one hand, China reaffirms its support for outbound investment by Chinese companies through enhanced public services and protections, as well as through bilateral and multilateral agreements and other forms of international cooperation, aimed at protecting Chinese investors, personnel and assets abroad. On the other hand, the Rules place a greater emphasis on national security and on preventing outbound investment from becoming a channel for the transfer of key technologies, sensitive data, strategic assets or critical personnel in ways that may affect the national interest. They also provide for countermeasures in response to discriminatory restrictions on Chinese investment and introduce clearer enforcement and penalties for non-compliance, including for prohibited investments, failure to complete the required approvals or filings, refusal to cooperate with security reviews and improper conduct such as bribery, fraud or market-disruptive behavior.
III. Interaction with the Existing ODI Framework
The new Rules do not replace China’s existing outbound direct investment (ODI) regime, which is built around the NDRC2’s outbound investment measures, MOFCOM3’s outbound investment rules and SAFE4’s foreign exchange controls. Instead, they preserve the existing approval, filing and foreign exchange architecture while superimposing a broader national security and strategic policy overlay.
The Rules apply broadly to domestic Chinese investors including enterprises, other organizations and resident individuals. They also provide that investments in Hong Kong, Macau and Taiwan are to be regulated by reference to the Rules, unless otherwise provided by the law, administrative regulation or the State Council. ‘Outbound investment’ is expansively defined to include not only the acquisition of the ownership interests in overseas companies or assets, but also the acquisition of the control, management rights or other related interests through contributions of assets or rights, as well as through financing or guarantees.
This definition is significant because it extends the scope of regulation well beyond conventional cross-border acquisitions. It is broad enough to capture a wide range of transaction structures including indirect investments, offshore restructurings, greenfield projects, financing arrangements and transactions designed to transfer the control, operational capability, strategic assets or other substantive interests offshore without a formal sale of assets or equity.
IV. New National Security Review for Outbound Investment
National Security Review
The most consequential feature of the new regime is the formal introduction of a national security review for outbound investment under Article 15 of the Rules.5
Until now, China’s investment-related national security reviews have mainly focused on inbound foreign investment into China, especially where foreign investors sought to acquire sensitive domestic businesses or assets. That framework was designed to address the risk that the foreign control of strategic Chinese assets could harm national security. It did not directly address the reverse risk: that Chinese companies themselves might move sensitive assets, technology, data or strategic capabilities offshore through overseas investments, offshore restructurings, corporate redomiciliation, business relocation or foreign exits.
The new Rules are intended to close that gap. They authorize the government to conduct security reviews of outbound investments, as well as the offshore transfer or disposal of assets and interests, where national security is or may be affected. They also give regulators a clearer basis to intervene, such as stopping transactions, requiring the divestment of shares or assets, and imposing penalties where investments proceed without the required approvals or are later found to create unacceptable security risks.
The practical effect is to treat outbound investment as a national security issue in a much wider range of cases than many market participants may previously have expected. The likely areas of concern are easy to identify: investments involving artificial intelligence, semiconductors, quantum technology, dual-use industrial capabilities, advanced manufacturing systems, strategic minerals, cybersecurity assets and large-scale data operations will be the obvious candidates for scrutiny. But the significance of the new rules goes beyond these sectors. The key issue for regulators is likely to be whether a transaction could lead to the offshore transfer, weakening or loss of assets or capabilities that Beijing regards as strategic. That may include not only technology and data but also production know-how, engineering capabilities, supply chain resilience and even the ability to direct, retain or redeploy key technical personnel.
Restrictions on the Transfer of Critical Technology and the Movement of Core Personnel
This point is especially clear in the provisions that deal with technology transfers. Under the Rules, investors may not export or use, in connection with outbound investment, any goods, technologies, services or related data that the State prohibits from export. Items subject to export restrictions may not be exported, used or otherwise transferred without the required approval, as provided in Article 13 of the Rules.6
This language ties the ODI framework directly to China’s broader export controls, including the Export Control Law, the rules governing dual-use items and the regulations on technology import and export. This is not entirely new: Chinese law has long regulated the export of controlled technologies. What is new is the clarity with which the Rules address outbound investment as a possible channel for cross-border transfers. The Rules make clear that investment structures cannot be used to circumvent export controls and that regulators will look at the substance of a transaction rather than its formal label.
One of the most notable aspects of Article 13 is its treatment of personnel movement. It makes clear that investors may not transfer prohibited technologies, or restricted technologies without authorization, by sending technical personnel abroad, arranging for employees to work overseas, providing cross-border technical guidance or organizing cross-border training.
This is an important development because it addresses an area that has long been uncertain in practice. Chinese companies expanding overseas often send engineers, technicians and managers from the mainland to support foreign affiliates, set up production lines, solve manufacturing problems or train overseas teams. These activities are often treated as ordinary business operations rather than formal technology transfer arrangements and may involve no separate payment or licensing structure. The new Rules make clear that such arrangements may still be treated as regulated technology transfers. In doing so, they recognize that in advanced industries, strategically important know-how often moves through people, not just through contracts, patents or source code.
Restrictions on the Movement of Sensitive Data
The same logic applies to data. The Rules expressly refer to ‘related data’ and require compliance with the broader PRC legal framework governing cross-border data transfers and controlled information. This matters particularly for AI, cloud, platform, industrial software and digital infrastructure businesses, where the transaction value may depend less on the formal ownership of a company than on access to datasets, training environments, user information, system performance data and remote operational visibility. Even if a transaction appears straightforward at the equity level, it may raise much more complex issues if it involves moving data offshore, granting remote access to regulated systems, integrating cross-border databases or transferring model-related know-how through implementation or support services. The Rules reflect a modern view of technology control: strategic capabilities can be transferred not only through hardware shipments or patent assignments, but also through data architecture, software support, employee mobility and operational integration.
A recent high-profile case involving the proposed acquisition of a Chinese AI-focused company by a major foreign technology company illustrates these concerns and helps explain why China has formalized its legal authority in this area. The reported intervention by Chinese authorities, and the eventual unwinding of that transaction on national security grounds, suggest a growing reluctance to allow Chinese-origin AI capabilities to pass into foreign control through offshore transaction structures. In that sense, the new Rules can be understood as a response to the increasingly sophisticated outbound structuring in the technology sector. They give the State a clearer legal basis to look beyond the legal form and assess whether a transaction effectively transfers strategic Chinese assets or capabilities abroad, whether through M&As, offshore redomiciliation, personnel relocation, data migration or the creation of overseas operating platforms.
V. Comparison with the U.S. Outbound Investment Rules (Reverse CFIUS)
China’s new outbound investment regime invites comparison with the U.S. outbound investment controls. In recent years, the United States has developed its outbound investment security framework through Executive Order 14105 and the Treasury Department’s implementing regulations, focusing on semiconductors, quantum technologies and AI in countries of concern, with China at the center of that policy design.
The U.S. program is relatively narrow and highly sector-specific. It is based on the concern that outbound U.S. investment may provide not only capital, but also intangible benefits that strengthen the military, surveillance, intelligence or cyber capabilities of strategic rivals. China’s new regime comes from a different institutional tradition, but its strategic premise is strikingly similar. Chinese authorities are now concerned that Chinese companies, investors and founders may move capital, talent, know-how and strategic assets abroad in ways that weaken China’s technological position or expose sensitive capabilities to foreign influence. Both systems reflect a world in which cross-border investment in advanced technologies is no longer treated as presumptively benign.
However, China’s regime differs from the U.S. outbound investment program in important ways. It appears broader and more discretionary in its national security review, and it is more directly integrated with export controls, data controls and personnel restrictions. It also has a distinctly retaliatory dimension.
The Rules authorize Chinese authorities to respond to the discriminatory restrictions or sanctions imposed by foreign states, organizations or individuals against Chinese investors and their overseas investments. Depending on the circumstances, China may adjust country-specific investment policies, restrict the import or export of goods and technologies, limit investment access and take countermeasures under the Anti-Foreign Sanctions Law. The government may also impose restrictions on the foreign entities or individuals considered to have harmed China’s sovereignty, security or development interests. As such, the Rules are both a screening mechanism and a geopolitical response tool. They are designed not only to prevent strategic assets from leaving China on problematic terms, but also to give China leverage against the foreign governments and firms that participate in efforts to restrict Chinese capital.
China’s new ODI review may also affect discussions about any future U.S.-China investment coordination mechanisms focused on non-sensitive sectors, including the idea of a bilateral Board of Investment that has reportedly surfaced in the wake of the recent Trump-Xi summit. In theory, this could help define safe lanes, reduce uncertainty and prevent wholesale investment decoupling. But it would face significant challenges. The line between sensitive and non-sensitive sectors is increasingly unstable, particularly where data, software, advanced industrial processes and dual-use functionality are involved. A business that appears commercially ordinary may still involve capabilities or information that regulators regard as strategically important. The Rules’ broad and discretionary design, together with their retaliatory features, adds another layer of complexity to any such framework.
VI. Conclusion
In sum, China’s new ODI regime marks a significant shift in the legal and policy treatment of outbound investment. Although the Rules formally sit within the existing ODI framework, their real significance lies in the way they expand that framework beyond administrative approvals and foreign exchange controls into a broader system of national security review, export control enforcement, data regulation and strategic risk management. Outbound investment is no longer solely treated as a question of capital deployment or corporate structuring. It is also now viewed as a potential pathway for the offshore transfer of technology, data, know-how, operational capability and key personnel.
The Rules are notable for the breadth of the transactions they may reach and for their emphasis on substance over form. They are broad enough to capture not only conventional overseas acquisitions, but also offshore restructurings, financing arrangements, personnel deployments, data migration, technical support models and other structures that may shift strategic capabilities abroad without a formal transfer of equity or assets.
For companies, founders, investors and deal advisers, transactions involving Chinese technology, data, engineers or other strategic business assets can no longer only be assessed through the traditional lens of ODI approvals, MOFCOM and NDRC filings, SAFE registration and offshore structuring. They must also now be evaluated through the lens of national security, export controls, cross-border data compliance and personnel mobility.
Similar to the U.S. outbound investment controls, China has now also formally embraced outbound investment screening as an instrument of state strategy. The result is a new operating environment in which outbound investment must be understood not only as an economic activity, but also as a matter of geopolitical and technological competition and governance.
For further information, please contact:
Kenneth ZHOU, Partner, JunHe
Zhou_Kenneth@junhe.com
1. https://www.gov.cn/zhengce/content/202606/content_7070755.htm
2.The National Development and Reform Commission, China’s economic planning authority.
3.The Ministry of Commerce, China’s regulator on investment and trade.
4.The State Administration of Foreign Exchange, China’s regulator on foreign exchange control policies.
5.Article 15 provides: “The State shall improve the security review system for outbound investment. The investment department and the commerce department of the State Council, together with the other relevant departments of the State Council, will conduct security reviews of outbound investments and of the transfer or disposition of the related assets, rights and interests, that affect or may affect national security. Organizations and individuals must provide assistance and cooperation, must not refuse or obstruct such review, and must comply with the decisions made in the outbound investment security review.”
6.Article 13 provides “When conducting outbound investment activities, investors must not export or use goods, technologies, services or related data whose export is prohibited by the State, or export or use, without authorization, goods, technologies, services or related data whose export is restricted by the State. Investors must also not transfer to other countries or regions, by means such as the cross-border secondment of technical personnel, organizing personnel to work in other countries or regions, providing cross-border technical guidance or arranging cross-border training, any goods, technologies, services, or related data whose export is prohibited by the State, or, without authorization, any goods, technologies, services or related data whose export is restricted by the State.”
