Chinese companies are currently being drawn, whether by choice or by necessity, into the wave of overseas business operations. As regards the underlying causes of involuntary overseas expansion, these include both the export controls imposed by the United States, the European Union, and other countries on China-related supply chains, and the various unjustified import tariffs and non-tariff barriers that such countries have erected on the basis of discriminatory presumptions against China in areas such as labour, environment, and/or subsidies. These measures either affect the upstream supply chains of China-based enterprises (for instance, the export controls imposed by the United States and others on the high-end semiconductor sector in respect of China) or obstruct the entry of the downstream supply-chain products of China-based companies into the markets of the European Union, the United States, and elsewhere. Against this background, the overseas investment of Chinese companies is driven both by the need to develop international markets and by the necessity of responding to the foregoing measures by which the United States, the European Union, and other countries threaten the resilience and security of China-related industrial and supply chains.
The Provisions of the State Council on Outbound Investment (hereinafter, the "Provisions"), promulgated on 1 June 2026 and effective from 1 July 2026, formulate the trade compliance obligations of outbound companies and lay down countermeasures in respect of foreign acts that discriminate against Chinese investment or trade.
I. Security Review of Outbound Investment and Related Operations
For the first time at the level of administrative regulations, the Provisions establish a security review regime for outbound investment (Article 15) and extend the scope of review from the outbound-approval stage to subsequent activities following the outbound investment, such as the transfer and disposal of overseas assets and interests. This means that, once an outbound investment has been completed, the relevant assets do not fall entirely outside China's regulatory oversight of outbound investment security: where such assets involve key technologies, important data, strategic resources, critical infrastructure, or control over core supply-chain nodes or platforms, their sale, divestment, restructuring, pledge, custodial arrangement, settlement arrangement, or change of control may still fall within the scope of review due to national security reasons.
II. ODI Approval and Filing as Initial Step of Compliance
The Provisions reiterate that outbound investment activities must comply with the legal and regulatory regimes governing cross-border funds, import and export controls, data flows, the entry and exit of personnel, cybersecurity, taxation, and the supervision of state-owned assets, among others (Article 14). Companies shall not treat ODI approval and filing as a once-and-for-all compliance milestone for outbound investment. Rather, companies must identify whether any relevant legal or regulatory risks arise at the stages of project initiation, transaction structuring, and project implementation and operation. Such legal and regulatory risks may concern, among other matters: (1) the export of prohibited or restricted goods and technologies; (2) the export of dual-use items; (3) the security of outbound data transfers; (4) the outbound transfer of personal information; (5) the notification of concentrations of undertakings; (6) the supervision of overseas state-owned assets; and (7) tax filing.
III. Chinese Trade Compliance Obligations of Outbound Business Investors
Article 13 of the Provisions sets out three levels of Chinese trade compliance obligations for outbound companies:
First, in carrying out outbound investment activities, an investor must not export or use goods, technologies, services, and related data whose export is prohibited by the State, nor export without a licence those whose export is restricted by the State (altogether, "prohibited or restricted items").
Secondly, in carrying out outbound investment activities, an investor must not unlawfully export the aforesaid prohibited or restricted items by disguised means. Such disguised export includes transferring China's prohibited or restricted items abroad through means such as cross-border secondment of technical personnel, expatriation of personnel to work outside China, cross-border provision of technical guidance, and arrangement of cross-border training of personnel.
Thirdly, it shall be noted that the foregoing provision requires that, in carrying out outbound investment activities, a Chinese investor must not use prohibited or restricted items in breach of Chinese law. It is generally understood that outbound investment activities include overseas operations. Accordingly, a Chinese investor bears compliance obligations and liability for unlawful conduct in respect of the use, by its overseas subsidiaries, of prohibited or restricted items in breach of Chinese law as described above. By contrast, the earlier Measures for the Administration of Overseas Investment issued by the Ministry of Commerce (MOFCOM) in 2014 and the Measures for the Administration of Overseas Investment by Enterprises issued by the National Development and Reform Commission (NDRC) in 2017 provided only that the relevant items "must not be exported" and did not provide that prohibited or restricted items "must not be used" in breach of Chinese law.
IV. Restrictions on Flow of Information to Foreign Public Authorities
Under Article 22, the Provisions impose regulatory conditions on the provision of materials abroad by outbound companies in the following two scenarios: first, participation in overseas arbitration or litigation relating to outbound investment; and second, subjection to investigation by overseas judicial or law-enforcement authorities. In such cases, where a company does need to provide evidence or other materials abroad, it must satisfy two sets of regulatory requirements at the same time: first, the cross-border transfer of the materials must not in itself contravene the laws and regulations governing state secrets, data security, personal information protection, the administration of technology export, export control, judicial assistance, and the like; and secondly, where the permission of the competent authority is required by law, the company must complete the corresponding prior approval or filing procedures.
V. New Countermeasures of China in Outbound Investment
In respect of foreign states (or regions) or international organisations, where they violate international law and the basic norms governing international relations and adopt discriminatory prohibitive, restrictive, or other similar measures against China in respect of investment and business operations, the relevant departments may take countermeasures such as restricting the import and export of relevant goods and technologies or international trade in services, and may designate the relevant parties onto the Name List of Countermeasures.
In respect of investment barriers in the host country, where a Chinese investor encounters trade-related investment barriers or other obstacles to investment and business operations in the host state (or region), the competent department of commerce may, on its own or together with other departments, organise and conduct an investigation, and may accordingly take protective measures such as adjusting the country-specific investment policy and restricting the import and export of relevant goods and technologies or international trade in services.
Under the circumstances of countermeasures as outlined above, foreign companies may be affected in their trade business with China or related investment activities in China.
VI. Key Compliance Points for Outbound Chinese Investors
First, Chinese companies need to consider reviewing the compliance status of their existing outbound investment projects, with particular attention to whether established overseas entities, overseas M&A targets, overseas reinvestment, overseas financing guarantees, employee shareholding platforms, or similar control arrangements give rise to any of the following issues: failure to complete approval and filing as required, inconsistency between the filed information and the actual circumstances, failure to make change filings in a timely manner, or failure to perform reinvestment reporting obligations.
Secondly, Chinese companies shall conduct a comprehensive compliance assessment in advance of any new outbound investment project.
Thirdly, Chinese companies shall establish an internal-control checklist for the five categories of cross-border flows, namely goods, technologies, services, data, and personnel, so as to ensure compliance in respect of technology export, the export of dual-use items, outbound data transfers, and the outbound transfer of personal information.
Fourthly, Chinese companies shall refine their self-assessment mechanisms for outbound investment security and for sensitive sectors. For projects involving key technologies, strategic resources, important data, or core algorithms, Chinese companies shall separately assess whether overseas expansion, overseas restructuring, asset disposal, the transfer of core interests, and project exit may affect national security of China, andthereby make prudent decisions consistent with the overarching requirements of national security.
Fifthly, Chinese companies shall ensure that their overseas operations comply with China's regulatory requirements concerning exported items, and avoid using items or data that contravene the export regulation of China.
Source: Global Law Office
Authors: Deming Zhao, Xinming Zhao