Regulations to safeguard outbound investment

On June 1, China's State Council — the nation's Cabinet — released regulations on outbound investment (hereinafter referred to as "the regulations"), which will take effect on July 1. As the country's first comprehensive administrative regulations governing outbound investment, they mark a historic step toward a unified legal framework for overseas investment activities.

They represent an important legal milestone in balancing development and security while advancing high-standard opening-up, with far-reaching historical and practical significance.

China's outbound investment has undergone nearly half a century of development. Since the country first proposed allowing enterprises to establish operations overseas in 1979, outbound direct investment has grown steadily, reaching $174.38 billion in 2025.

Chinese companies have established more than 50,000 enterprises abroad, making China one of the world's major sources of outbound investment.

Despite this rapid growth, governance of outbound investment has long relied on departmental regulations and policy documents. Regulatory responsibilities were divided among agencies such as the National Development and Reform Commission, the Ministry of Commerce and the State Administration of Foreign Exchange, resulting in a fragmented framework without a unified legal foundation.

The regulations bring the oversight functions of different authorities into a single institutional framework for the first time through an administrative regulation. They establish the basic legal rules governing outbound investment and represent an evolution from policy-based management to institutionalized governance backed by the rule of law.

Some scholars have noted that the legislation fills a long-standing institutional gap in the outbound investment sector, and provides a fundamental legal basis for investment administration and services. It signals a new stage of law-based and standardized governance for China's outbound investment activities.

Consisting of 34 articles, the regulations establish a full-cycle governance framework covering pre-investment approval and filing procedures, ongoing supervision and post-investment accountability. The framework rests on three major pillars.

The first is a commitment to openness and alignment with international standards. Article 4 states that China will actively align with high-standard international economic and trade rules, promote high-quality Belt and Road cooperation, and participate in the development of international investment rules.

This approach reflects China's commitment to multilateralism, while providing institutional support for deeper participation in global economic governance.

Articles 24 and 25 establish a two-way countermeasure mechanism that allows China to take lawful responses against discriminatory measures imposed by foreign countries, providing institutional protection for Chinese investors overseas.

The second pillar focuses on improving the quality of outbound investment. The regulations encourage investment in areas such as technological innovation and green, low-carbon development.

At the same time, they place restrictions on investment in sensitive sectors including real estate, hotels, film and television, gene editing and rare-earth mining, while prohibiting activities involving weapons and military equipment development, news media and gambling.

This classified management approach represents a shift from broad-based regulations toward more targeted oversight, helping direct capital toward strategic sectors that support high-quality development.

The third pillar is strengthening risk prevention and security safeguards. The regulations establish a comprehensive framework covering the stages before, during and after investment activities. Before projects proceed, investors are required to complete approval, filing and information-reporting procedures in accordance with the law.

During implementation, stricter controls apply to the cross-border movement of technology, data and personnel. Afterward, violations may trigger penalties, including fines ranging from 0.5 percent to 1 percent of the investment amount.

Entities that obtain approvals or filings through fraudulent means may have future applications rejected for three years. These measures significantly raise the cost of noncompliance and bolster deterrence.

The practical value of the regulations extends beyond oversight alone. Their significance also lies in strengthening services and protection, thus creating a more comprehensive governance framework.

One important aspect is the development of an integrated overseas service system. The regulations call for improved coordination of resources related to foreign affairs, legal services, taxation, finance and logistics. Investors will have access to public services covering laws and regulations, investment guidance, risk prevention and rights protection.

Banking institutions will provide financing services, policy-oriented insurers will offer overseas investment insurance and professional service providers will expand their overseas networks. This reflects a governance approach that places equal emphasis on regulations and services.

The regulations also establish a multilayered framework for protecting rights and interests overseas. Risk warning mechanisms will provide timely information on security conditions and investment risks.

Consular protection mechanisms will offer assistance in cases involving wars, armed conflicts and other major emergencies.

Investment dispute resolution mechanisms encourage consultation, mediation, arbitration and litigation as means of resolving disputes. In addition, countermeasure mechanisms allow investigations and responses to investment barriers and discriminatory practices.

Together, these arrangements provide stronger support for Chinese companies operating overseas.

Another notable feature is the clarification of the relationship between government oversight and market autonomy.

Article 5 states that investors enjoy the legal right to make independent outbound investment decisions and bear their own risks and responsibilities. The provision reflects respect for the role of market entities. Within clearly defined compliance boundaries, enterprises retain ample room for commercial decisionmaking.

As a result, outbound investment governance is moving away from broad, one-size-fits-all administration toward more targeted and refined regulation, achieving a better balance between policy guidance and market principles.

The release of the regulations represents an important step in modernizing China's outbound investment governance and carries broader significance.

First, it reflects China's contribution to global economic governance. At a time when unilateralism and protectionism are gaining ground in some parts of the world, the regulations not only provide legal safeguards for Chinese investors, but also send a clear signal of China's commitment to multilateralism and opposition to protectionist practices.

As China increasingly moves from being a participant in international rules to playing a greater role in shaping them, the regulations reflect this evolving position.

Second, the framework serves as an example of balancing development with security. It combines measures aimed at promoting high-quality outbound investment with mechanisms designed to prevent and address risks, helping achieve a balance between greater openness and effective oversight, while enhancing protection for China's growing overseas interests.

Third, the regulations are expected to support higher-quality development. As China's outbound investment shifts from pursuing scale to pursuing quality, the framework provides clearer guidance on where investment is encouraged, restricted or prohibited.

By directing capital toward areas such as technological innovation and green development, it offers policy support for Chinese enterprises seeking to move up the global value chain.

From the country's first proposal in 1979 allowing enterprises to establish operations overseas to the introduction of its first comprehensive administrative regulation in 2026, China's outbound investment has undergone nearly five decades of development.

By transforming long-standing policy measures into a formal legal framework, the regulations fill an important legislative gap in the outbound investment sector.

Looking ahead, their implementation is expected to help China's outbound investment evolve from scale-driven expansion toward higher-quality and more efficient growth, while promoting a shift from extensive management to more refined governance.

In doing so, they will provide stronger legal support for high-standard opening-up, thus helping achieve the country's broader development goals.

The writer is a research fellow at the National Academy of Development and Strategy at Renmin University of China.

The views do not necessarily reflect those of China Daily.