Optimized outflow rules take effect

China implemented its first-ever administrative regulation on outbound investment on Wednesday, a sweeping legal framework designed to manage, facilitate and protect the country's rapidly expanding overseas direct investment while upholding national security and development interests, legal and economic experts said.

Unveiled last month by the State Council, China's Cabinet, the regulation marks a significant upgrade from the previous patchwork of departmental rules to a unified, higher-level statutory framework.

The move comes as China's overseas direct investment stock ranks among the world's largest, and as the international environment grows more complex, with rising unilateralism and protectionism. By the end of last year, China had established more than 50,000 overseas enterprises spanning 190 countries and regions, according to the Ministry of Commerce.

In 2025, outbound direct investment reached $174.38 billion, up 7.1 percent year-on-year, with the investment stock ranking among the world's top three for the ninth consecutive year, data from the ministry showed.

Yet for a long time, the primary legal basis for outbound investment consisted of fragmented departmental regulations and normative documents, low in legal rank and scattered across provisions.

"When faced with cross-border friction or interdepartmental coordination, they often fell short," the Ministry of Justice, the National Development and Reform Commission and the Ministry of Commerce said in a joint statement.

The new framework fills that gap. Han Liyu, a law professor at Renmin University of China, called it a "major reform and improvement" of China's outbound investment system and "a leap forward in outbound investment institutions".

The regulation takes a dual approach by actively encouraging and supporting outbound investment while imposing clear red lines. Investors are granted autonomy to make their own decisions, bear their own risks and assume responsibility for their profits or losses, but they must operate within the rule of law.

To streamline this process, the country will coordinate foreign affairs, legal, fiscal, financial, trade, and logistics resources into a centralized overseas service system. This includes explicitly incorporating financial institutions into the deployment framework: commercial banks are directed to provide cross-border financing on market-oriented terms, while policy insurers are encouraged to expand coverage.

Tian Yuan, a researcher at the Chinese Academy of International Trade and Economic Cooperation, called the promotion of policy-backed overseas investment insurance a "key measure" to strengthen the country's risk protection system.

Tian said that Chinese companies face uncontrollable risks such as geopolitical conflicts and exchange fluctuations, often only partially covered by commercial insurance.

"Going forward, insurance institutions can expand coverage for medium — and long-term overseas investment, covering small and medium-sized enterprises and high-tech projects, reducing operational uncertainty and boosting the willingness of real-economy companies to invest abroad," he added.

The regulation also takes aim at harmful competitive practices that have tarnished the reputation of Chinese companies overseas, including predatory pricing, theft of trade secrets and defamation of competitors.

"These behaviors have not only led to losses for individual companies but have also dragged down overseas profits for entire industries and damaged the international reputation of Chinese enterprises," said Cui Fan, professor of international trade at the University of International Business and Economics.

By explicitly prohibiting such unfair competition, the rule establishes a unified code of conduct, guiding companies away from low-price involution and toward healthy competition in technology, quality and service, Cui added.

The new regulation also strengthens China's hand against investment barriers and discriminatory restrictions.

Additionally, when Chinese investors encounter trade-related investment barriers or other operational obstacles, the Ministry of Commerce may launch investigations, adjust country-specific investment policies, or restrict imports, exports or trade in services.

"The regulation gives Chinese companies a more predictable legal environment and a stronger negotiating position when facing unfair treatment abroad," said Han Bing, an associate researcher at the Institute of World Economics and Politics at the Chinese Academy of Social Sciences.

It will work in tandem with existing laws, including the Anti-Foreign Sanctions Law and the regulation on industrial and supply chain security, to create a more robust mechanism to defend China's interests against discriminatory treatment and unilateral sanctions, Han added.

It's also worth noting that the regulation officially includes "individual residents" within its scope of investors.

"This should not be simply interpreted as a full opening of individual overseas investment," said Wang Qinghua, a senior partner at AllBright Law Offices in Shanghai.

While the regulation provides a principle-based recognition of individuals as overseas investors, key details such as how individuals can invest abroad, what procedures they must follow, whether approval or filing is required, and how capital outflows will be managed will have to be clarified in subsequent supporting rules, Wang said.

Until detailed rules are issued, individuals must still comply with existing foreign exchange, tax, anti-money laundering, securities and outbound investment regulations, Wang added.

He said that future individual overseas investment management is likely to focus not only on capital outflows but also on the legality of funding sources; the reasonableness of investment purposes; the transparency of offshore structures; possible round-tripping arrangements; and whether the investment involves sensitive industries, controlled technologies, cross-border data flows or attempts to evade regulation.

"For individuals, especially those setting up offshore entities, participating in overseas startup projects, buying equity in foreign companies or engaging in complex asset arrangements, it is more necessary than ever to verify the compliance path in advance," Wang said.

wangkeju@chinadaily.com.cn