China tightens outbound investment rules with eye on security

[BEIJING] China strengthened oversight of outbound investment through a new directive, tightening cross-border capital flows as its technology rivalry with the US intensifies.

The rule, published Monday (Jun 1) by China’s cabinet, seeks to “improve” reviews for overseas investments that could affect national security.

It strengthens requirements for domestic organisations and individuals to assist with such reviews and comply with decisions, in what appears to be efforts to unify and harden previously fragmented regulations.

Under the regulation, effective Jul 1, investors are prohibited from transferring restricted goods, technology, services and data overseas. Companies are also banned from providing technical training in order to export those things, according to the document.

The comprehensive document builds on existing rules scattered among various ministries already regulating outbound investments, including the National Development and Reform Commission, Ministry of Commerce and the State Administration of Foreign Exchange. 

The move comes as Beijing and Washington are racing to dominate artificial intelligence and other key technologies. The new rules were adopted at a meeting of the State Council on Apr 17, days before China ordered the cancellation of Meta Platforms’ US$2 billion acquisition of agentic AI startup Manus.

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The latest decree introduces explicit financial penalties for offenders. Investors that undertake prohibited overseas investments may be ordered to halt transactions, dispose of assets and pay fines of up to 1 per cent of the investment amount. BLOOMBERG