Clearer rules lead to lower decision-making costs. On July 1st, the "State Council Regulations on Outbound Investment" will officially take effect, marking the first administrative regulation specifically named for "outbound investment."
The Regulations, comprising 34 articles and 4,729 characters, directly address three major questions that have long troubled companies expanding abroad: Is overseas expansion encouraged? What are the red lines? And how will the government ensure the safety of such ventures?
"The matter is now on the table," said Zhuo Li, Chairman of the Chinese Business Overseas Industry Alliance, with notable excitement. She described these regulations as a "landmark event worthy of being recorded in history for Chinese enterprises going global." In her view, as a long-time intermediary connecting Chinese companies with professional service providers and foreign governments, the most significant effect of these regulations is the provision of "certainty."
Article 5 of the Regulations clearly states: The state supports investors in carrying out outbound investment activities in accordance with market principles and actively participating in international cooperation and competition. Investors lawfully enjoy autonomy in outbound investment, making their own decisions, bearing their own risks, and assuming sole responsibility for profits and losses.
"What can be done, what cannot be done, how should it be done? Not saying anything is the biggest risk; saying more, explaining more clearly, increases certainty," Zhuo Li remarked. This assessment has a practical background. From the tentative steps abroad in the 1990s, to the large-scale export of Chinese goods, followed by cross-border e-commerce and brand globalization, Chinese companies have continuously deepened their overseas presence.
By 2015, China became a net capital exporter for the first time, with outward direct investment surpassing Japan to rank second in the world, entering a "golden period" for foreign investment. The current fourth wave of overseas expansion presents a markedly different profile from the past.
In terms of form, it is a broader "all-factor expansion." Companies are no longer just selling products or buying assets; they are now building factories overseas, establishing R&D centers, setting up platforms, deploying global sales networks, securing key resources, and participating in local industrial ecosystems, significantly increasing complexity.
Regarding the entities involved, the focus has shifted from mature large enterprises and state-owned enterprises to a collective effort involving large, medium, and small enterprises. Among them are veterans with years of overseas experience, but many more are "new recruits" riding the powerful wave. In 2024, non-public economic entities accounted for 54.3% of China's direct outward investment, and Zhuo Li notes that 70% of small and medium-sized enterprises are expanding abroad for the first time.
Consequently, alignment with national strategic direction has inevitably become a primary concern for companies. This caution is already reflected in the data. EY data shows that in the first quarter of 2026, China's full-industry outward direct investment grew by 8.9% year-on-year, but non-financial outward direct investment fell by 6.1%. Meanwhile, the number of overseas M&A transactions by Chinese enterprises dropped by 28%, hitting a decade-low for a single quarter.
Thus, the introduction of the Regulations may be particularly timely. The principle of "whatever is not prohibited by law is permitted" means that, theoretically, anything not explicitly forbidden can be done.
For a long time, China's outbound investment was not without rules. Departments like the NDRC, Ministry of Commerce, and the State Administration of Foreign Exchange each had their roles, focusing on project management and national security, overseas investment entity management and information reporting, and cross-border capital flow supervision, respectively. However, for enterprises, the defining characteristic of this framework was its "fragmentation," making it difficult to find a complete, unified system that could directly answer "can I do this" or "how should I do it."
Zhuo Li admits that some companies, after successfully expanding overseas, often choose to "keep a low profile," which is somewhat related to this situation. Now, with the Regulations officially promulgated as the first administrative regulation on "outbound investment," "the matter is now on the table."
Encouragement with Red Lines
However, for enterprises, while the principle is "what is not prohibited is permitted," in certain areas such as national security, foreign exchange management, technology export, and cross-border data flow, the focus cannot be solely on commercial feasibility. This time, while everyone sees increased "certainty," the regulatory red lines are also further clarified.
Most notably, Article 14 of the Regulations states: Matters concerning outbound investment involving foreign exchange settlement and sales, import and export of goods and technologies, cross-border trade in services, cross-border data flows, management of personnel exit and entry, as well as merger control reviews, export controls, cybersecurity supervision, tax collection and administration, and state-owned assets supervision shall be handled in accordance with relevant laws, administrative regulations, and state provisions.
"In the past, many companies understood overseas expansion primarily from a business perspective—where there's a market, where costs are low, where there are orders and resources, they would go there," said lawyer Bao Ledong, who regularly assists companies with designing overseas investment structures, cross-border M&A, setting up overseas companies, and establishing compliance systems. For this lawyer, who deals with "overseas expansion law" daily, the Regulations provide a complete strategic perspective for companies from a compliance standpoint.
"Going abroad today is far from simply whether a deal can be closed. Foreign exchange, taxation, data, technology, industrial chains, national security, overseas rights and interests, plus how to handle disputes if they arise—these matters are all intertwined." In his view, the introduction of the Regulations is less about "setting up roadblocks" and more about further clarifying the rules of the road.
From an entrepreneur's perspective, Zhuo Li believes the Regulations make clear "what is not allowed and the consequences," which also somewhat alleviates another concern for those already operating abroad—whether their current activities might face "retroactive regulation."
The delineation of red lines also has practical considerations. As more and "younger" entities expand overseas, the pace has accelerated, leading to many instances of "business goes first, compliance catches up later."
"There are many typical cases in my projects," Bao Ledong said. "Companies discover only after completing a merger that the target company has a host of historical issues with taxes, labor, environmental protection, even sanctions compliance. What they end up buying may not be a quality asset, but a whole set of legacy risks."
The Manus incident, which attracted widespread attention not long ago, is a concentrated manifestation of new problems under new circumstances. While the timing of the Regulations' release is close to the incident's occurrence, the drafting, deliberation, and approval process for State Council administrative regulations often takes a long cycle, so there is no direct causal link. Instead, the Manus incident served more as a real-world rehearsal. "Companies can go out, but in areas involving national security, core technologies, important data, and industrial/supply chain security, the boundaries will definitely be drawn more clearly," Bao Ledong interpreted.
"In areas involving artificial intelligence, core algorithms, key data, important technologies, as well as overseas control structures and overseas financing arrangements, future supervision will increasingly focus on substance." Against this backdrop, it is easier to understand why the Regulations consistently revolve around the two main themes of "development" and "security."
However, the Regulations do not merely encourage or regulate the behavior of companies going abroad. Over 30% of the articles place higher demands on the government itself.
A Protection System for the "Chinese Economy Abroad"
By 2025, Chinese enterprises had established over 50,000 entities in more than 190 countries and regions. The full-industry outward investment (ODI) reached $174.38 billion, with overseas investment stock exceeding $3 trillion. Together, they form a cross-border "Chinese economy abroad," an important bearer of China's overseas interests.
But as this scale has grown, beyond business operations, they face new dilemmas that are difficult to counter alone. Bao Ledong outlined several scenarios: "A company builds a factory overseas, then local policies change, and previously agreed tax incentives fail to materialize; Chinese parties participate in an infrastructure project, the local government changes, and the contract is demanded to be renegotiated..."
In such cases, companies typically first rely on contracts, evidence, and dispute resolution mechanisms to protect their rights. "However, in situations involving policy changes, discriminatory treatment, or significant damage to overseas rights and interests, it may also be necessary to lawfully utilize government communication, chamber of commerce coordination, arbitration and litigation, insurance arrangements, and economic and trade channels."
From an international perspective, when a country gradually transitions from a capital importer to a capital exporter, with its overseas interests spread globally, its regulatory system and professional service market often mature simultaneously. In this regard, Japan remains the best mirror.
In the 1980s, Japanese companies began moving en masse into Southeast Asian and North American markets. Alongside capital export, the Japanese government gradually established an overseas support network centered on the Japan Bank for International Cooperation (JBIC) and the NexImmune, Inc. (NEXI), covering financing, political risk insurance, and professional services.
These Regulations similarly aim to build a comparable system. For instance, Article 24 stipulates: If any country (region) or international organization, in violation of international law and the basic norms of international relations, adopts discriminatory prohibitions, restrictions, or other similar measures against the People's Republic of China in areas such as investment and operation, the Chinese government and its relevant departments may, based on actual circumstances, take corresponding measures to protect the safety and legitimate rights and interests of investors and their outbound investment, and to protect the country's overseas interests from threats and侵害.
Zhuo Li points out that compared to Japan's major wave of expansion, Chinese companies are operating in a more complex and severe environment. "Compared to Japan, Germany, and South Korea back then, we lack something very important—'friendliness.' Geopolitical conflicts, high trade barriers, and value clashes stemming from differences between Eastern and Western civilizations have multiplied the difficulties for our companies developing overseas."
In this sense, facing such a complex international landscape, relying on the strength of a single company is likely insufficient for adaptation and resistance. Precisely because of this, the Regulations attempt to systematically establish a framework for protecting China's overseas rights and interests, making clear stipulations for pre-event warnings, in-process support, and post-event relief and countermeasures.
Lawyer Dong Yizhi, an expert in overseas investment and asset allocation and a "Belt and Road" think tank specialist, believes that for private enterprises, small and medium-sized enterprises, and individual investors entering the international market, this institutional-level guarantee and support system is particularly important.
Beyond the government's role, other entities such as provincial governments, banks, legal, auditing, consulting, trade promotion, customs, and industry associations—platforms and institutions related to overseas expansion services—also find their respective positions and normative conditions specified in the Regulations.
"The document explicitly encourages market professional forces to deeply serve enterprises going global, helping them expand safely and compliantly. For service providers like us, this represents a more direct market opportunity," Zhuo Li said regarding her own industry.
From a lawyer's perspective, Dong Yizhi believes that while the government builds the protection system at the macro level, professional service providers, including lawyers, must help companies truly utilize this system effectively at the micro level.
Further Questions Arise
Clearer rules lower decision-making costs, but clear rules are never in excess. In the week since their release, while the Regulations have resolved a significant portion of existing concerns, they have also prompted new questions.
In Dong Yizhi's view, after the document's issuance, the market's most pressing concern has shifted from "whether it exists" to "how to use it."
First, when will the implementing rules under the Regulations framework be issued? For example, which industries, what specific scale of transactions require review, and how long will the review process take?
Second, how will the countermeasures outlined in the Regulations be operationalized? For instance, if a company faces discriminatory treatment after investing in a project overseas, how can it apply to initiate a barrier investigation process? How long are the application and investigation periods, and how should the project proceed during that time?
Third, for companies or professional investors already invested overseas, how should they participate in the filing process? In Dong Yizhi's opinion, these are the issues that entrepreneurs and investors, while generally affirming the positive role of the Regulations, hope will be clarified through detailed rules as soon as possible to further reduce uncertainty.
Bao Ledong stated that the most immediate question for entrepreneurs is no longer "can we still go out," but "how can we go out safely in the future." He suggests that after the Regulations take effect on July 1st, relevant companies will inevitably need to conduct a "compliance health check" on themselves, re-examining their entire structure, especially those with overseas entities, overseas accounts, overseas equity, overseas financing, overseas employees, and cross-border data flows.
Zhuo Li's focus remains on "patching gaps." She believes that when the government provides positive signals and regulatory boundaries at the legal level, other supporting elements like supply chains and ecosystem services need to accelerate their follow-up.
As one commentator has noted, "setting up a factory overseas takes two years to lay the foundation, five years to build scale, and ten years to determine success or failure." The difficulty and span of overseas expansion for a company are no less than starting a new venture. Protecting the enterprises, assets, technologies, and brands spread across the globe similarly requires a long process of institutional development.
Currently, the Regulations, together with the "Industrial and Supply Chain Security Regulations," the "Regulations on Countering Unjustified Extra-Territorial Application of Foreign Laws," the "Anti-Foreign Sanctions Law," and the "Foreign Trade Law," have preliminarily established a system for China to address external risks.
Within this system, the Foreign Trade Law governs more fundamental rules for trade, technology import/export, and trade in services. The Outbound Investment Regulations govern how Chinese investors go out, how they are managed, served, and protected afterward. The Industrial and Supply Chain Security Regulations focus on preventing chokeholds in key industries and supply chains. The Regulations on Countering Unjustified Extra-Territorial Application of Foreign Laws and the Anti-Foreign Sanctions Law primarily respond to foreign long-arm jurisdiction, unjustified sanctions, and discriminatory measures—that is, how to counter when others attempt to use their laws to govern our enterprises.
Thus, for the first time, a cross-border, globally dispersed "Chinese economy abroad" possesses a护航 mechanism capable of matching its global布局, and this mechanism will continue to be refined and expanded. As Bao Ledong stated: "True globalization means that no matter what legal environment, regulatory environment, or political-economic cycle a company finds itself in, it can stand firm and walk steadily."
*Note: All interpretations in this article pertain to the "State Council Regulations on Outbound Investment," which will take effect on July 1, 2026.
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