Client Alert: Provisions of the State Council on Outbound Investment

Authors: Shipo (Angus) XIE丨Peng HUANG丨Xikang WANG丨Xiayi (Clara) LIU丨Zhao ZHANG丨Jing (Gilbert) SHEN丨Xin (Gloria) WANG丨Chenchen ZHAO丨Zhengqi REN丨Langxi ZHOU

On June 1, 2026, the State Council promulgated the Provisions of the State Council on Outbound Investment (the “Provisions”), which will become effective on July 1, 2026.  For the first time, the Provisions set out in the form of administrative regulations a systematic set of rules, regulatory requirements, and legal liability for PRC domestic investors who undertake investment activities outside mainland China (hereinafter “outbound investment”).  Previously, the regulation of outbound investment was mainly based on the Measures for Administration of the Outbound Investment by Enterprises, promulgated by the National Development and Reform Commission (the “NDRC”) and the Measures for Administration of the Overseas Investment, promulgated by the Ministry of Commerce (the “MOFCOM”).

Background

In recent years, PRC investors have been making outbound investments with increasing frequency.  Previously, the regulatory requirements on outbound investment were mainly contained in the departmental rules promulgated by the NDRC and the MOFCOM, while the compliance requirements on national security, data security, technology export, and export control were scattered in various specific laws and regulations.  The Provisions integrate the existing regulatory requirements into a unified framework, reminding investors that when undertaking outbound investment, they should pay attention to the identification of risks in respect of national security, data security, and technology export and export control, in addition to the regular approval and record-filing procedures.

Core Provisions

I.       Clarifying the regulatory scope of outbound investment.  Outbound investment by individual residents is expressly included in the regulatory framework, with detailed regulatory rules to be issued

The Provisions specify the regulatory scope of outbound investment and apply to a wide range of situations.  In general, the Provisions cover activities whereby an investor directly or indirectly obtains the ownership, control, operation and management rights and other related rights or interests in enterprises or assets in other countries (regions) by means of making capital or equity investments or providing financing or guarantees, etc.  Investors include enterprises, other organizations, and individual residents within mainland China.  In particular, other organizations and resident individuals are also included in the scope of investment subjects.  Therefore, broadly speaking, the Provisions apply to all major forms of outbound investment made by all types of entities.

In particular, Article 33 of the Provisions states that the Provisions apply to investments investors make in overseas financial markets with their own funds, raised funds, or other funds entrusted with their investments.  The management of reinvestments outside China by investors of their assets, rights, and interests, etc. obtained from foreign investment are governed by these Provisions and other relevant provisions, which will be formulated by the competent investment department of the State Council and the competent MOFCOM department.  These specific provisions will be important for clarifying the regulatory scope Provision’s application.

II.     Further highlight the importance of technology export, export control, and data security

Article 13 of the Provisions provides very detailed provisions regarding the export of goods, technology, services, and related data involved in outbound investment: (1) It is prohibited to export or use goods, technology, services, and related materials prohibited from export by the state or exports without permission, or using goods, technology, services, and related data restricted for export by the State; and (2) The transfer of goods, technologies, services, and the related data to any other country (region), the export of which is prohibited by the State, or the transfer of goods, technologies, services, and the related data to any other country (region), the export of which is restricted by the State by means of cross-border dispatching technicians, organizing personnel to work in other countries (regions), providing cross-border technical guidance, arranging personnel for cross-border training, etc.  The second part mentioned above, in particular, basically covers the export of controlled goods, technologies, services and related data technologies in disguised form that are commonly seen in the outbound investment at present, which shows the regulatory authorities’ understanding and familiarity with these practices.

The Provisions are particularly important for high-tech enterprises such as AI and advanced manufacturing enterprises to make outbound investment.  Before making an outbound investment, investors are required to determine whether the information they intend to provide overseas involves controlled items and technologies, whether the export of such information is prohibited or restricted, whether it involves important data, personal information, or other data that may affect national security.  Relevant judgments and analysis will also have a significant impact on investors in such enterprises.

III.   Establish a security review system for outbound investment

Article 15 of the Provisions establishes an overseas investment security review system, under which overseas investments that affect or may affect national security are subject to review by the State Council’s competent departments for investment and commerce, in conjunction with other relevant departments.  Currently, the Provisions primarily establish the institutional framework, while the specific scope of review and filing standards remain to be clarified through supporting rules.  Once implemented, the review system will have a legal effect similar to that of the U.S. “Reverse CFIUS” regime.  (Once established, the review system will have a legal effect similar to the United States’ Reverse CFIUS regime (see Han Kun’s analysis)).

IV.   Classified and graded outbound investment regulation, investment barrier investigations, and anti-dumping mechanisms

According to Article 11 of the Provisions, the competent investment department of the State Council and the competent MOFCOM department, in conjunction with other relevant departments of the State Council, will (1) formulate, adjust, and implement outbound investment policies according to the needs of national economic and social development and the changes in the investment environment of the relevant countries (regions) and the degree of risk, etc., (2) specify encouraged, restricted, and prohibited outbound investments, (3) strengthen the regulation of outbound investments, and (4) guide and supervise the investors to regulate their investment and operation activities.

In addition, the Provisions establish an investment barrier investigation and anti-dumping mechanism: if investors encounter investment barriers or discriminatory restrictions in foreign countries, the competent MOFCOM departments may organize an investigation and take corresponding measures.  If any country (region) or international organization takes discriminatory prohibitive, restrictive, or other similar measures against the PRC in investment, operation, and other aspects in violation of international laws and basic norms governing international relations, the PRC government may take corresponding countermeasures.  If any foreign organization or individual endangers the national security and development interests of the PRC, the PRC government may take measures such as restricting imports and exports, restricting investment in China, or restricting transaction and cooperation, etc., and the PRC government may also list relevant entities on the counter-list pursuant to the Anti-Foreign Sanctions Law.

V.     Comprehensively upgraded punishment mechanism and introduction of new monetary penalties

The Provisions provide for legal liabilities for violations such as making prohibited outbound investments, failing to perform or providing false materials or applying for or obtaining the approval or record-filing formalities for outbound investment, and failing to cooperate in an outbound investment security review.  The penalties for violations include ordering the violator to cease its investment activities or dispose of its shares or assets within a specified time limit, confiscating any illegal gains, imposing a fine of up to 10% of the violator’s investment amount, and imposing a fine of up to CNY100,000 on the violator’s executives and other directly responsible persons, refusing to accept any application filed by the violator for outbound investment, and/or prohibiting the violator from further outbound investment within one to three years.  Accordingly, outbound investment compliance is no longer just a matter of formalities.  The consequences of noncompliance may directly affect whether a transaction can be implemented, whether overseas assets can be retained, and the subsequent ability of investors to go offshore.

Outbound Investment Advice for Enterprises

I.       Pre-review of a complete regulatory supervision checklist

Investors should pre-review compliance at the transaction design stage.  When initiating a project, investors should establish a complete regulatory supervision checklist and determine whether the project will be subject to any of the following review, record-filing, or compliance procedures:

• Outbound investment approval or record-filing (ODI) by the NDRC and the competent MOFCOM department;

•  Foreign exchange registration for overseas direct investment;

• Tax compliance review of outbound investment;

•  Anti-monopoly declaration of concentration of undertakings;

• Screening the compliance of technology export and export control;

• Compliance of network security and data export;

• Compliance review of entry/exit and work permits of personnel;

• Security review of outbound investment;

• Examination and approval or record-filing procedures for state-owned assets; and

•  Compliance review of laws and regulations and local laws and regulations of investment destinations.

II.     Cross-border focus on technology and data

High-tech enterprises in the fields of AI and advanced manufacturing, as well as investors that plan to invest in relevant enterprises overseas should pay special attention to:

• Whether the models, algorithms, source codes, and technical documents involve technologies prohibited or restricted from export, or export controlled items or technologies;

• Whether training data, business data, and others involve sensitive data such as personal information and important data;

• Whether overseas teams can access domestic systems, model parameters, or R&D environments;

• Whether the deployment of overseas computing forces and model reasoning services, etc. constitute the transfer of data abroad or the export of technical services; and

• Whether the provision of customized models, technical support, or training to overseas clients may trigger technology export or export control requirements and other relevant matters.

III.   Undertake ongoing management post-investment

After the completion of an outbound investment, capital increase, capital reduction, equity transfer, technical support, and data sharing may still trigger new regulatory requirements, and investors should include their outbound projects in ongoing compliance management process.  If disputes arise later, dispute resolution stages (negotiation, mediation, arbitration, litigation, etc.) must also pay attention to cross-border data compliance issues.

Conclusion

The introduction of the Provisions means that outbound investment regulation will be more systematic and unified.  Investors making future outbound investments should assess investment access, funds exit, technology export, data cross-border, security review, and post-investment management at the early stage of the transaction, abide by PRC laws and regulations, and go through legal procedures.  For high-tech enterprises in the fields of AI and advanced manufacturing, as well as investors that plan to invest in related enterprises abroad, special attention must be paid to analyzing and judging the legal and compliance risks of outbound investment and promoting outbound investment in accordance with the law and regulations.