China Issues New Outbound Investment Regulation

On June 1, 2026, the State Council of the People’s Republic of China (“PRC”) released the Regulation on Outbound Investment (the “Regulation”), the country’s first dedicated administrative regulation governing outbound investment at the State Council level. The Regulation, which is set to take effect on July 1, aims to create a centralized and higher-level regulatory regime for outbound investments and consolidate the relevant rules and guidance documents issued by individual agencies, such as the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”).

According to an official Q&A jointly issued by the Ministry of Justice, the NDRC, and MOFCOM, the previous framework can no longer meet current needs amid rising geopolitical risks and intensifying international competition. There is therefore an urgent need “to elevate effective long-standing regulatory measures into a higher-level legal framework, […] clarify the institutional arrangements governing outbound investment […], effectively safeguard the lawful rights and interests of investors and their overseas investments, protect China’s sovereignty, security, and development interests, and promote the high-quality development of outbound investment under the rule of law.”

Key provisions of the Regulation and their implications are discussed below.

Broad Jurisdictional Scope

The Regulation governs “outbound investments” conducted by “investors” within the territory of PRC. Article 2 defines both terms broadly. “Outbound investments” cover activities by which Chinese investors directly or indirectly acquire ownership, control, management rights, or other related interests in enterprises, assets, or other interests located in foreign countries or regions through capital contributions, equity participation, financing, guarantees, or other means.

Most significantly, “investors” include not only enterprises and other organizations but also individual residents (for example, startup founders) within China. Notably, even if a startup founder is not a PRC citizen, if the startup involves substantial assets and/or operational activities within the PRC, it is usually unlikely that the founders would be able to manage the business entirely from abroad. And the necessary presence by the founders in the PRC, even if not on a permanent or long-term basis, may be found sufficient to trigger jurisdiction under the Regulation. 

New Outbound Investment Review Mechanism

Article 15 establishes a “perfected,” cross-agency outbound investment review mechanism, under which the relevant State Council agencies will review outbound investments that may affect national security. It requires “relevant organizations and individuals” to provide assistance and cooperation, and to comply with the decisions made via the security review mechanism. Even though the Regulation mandates the establishment of the review mechanism, implementation details such as scope, procedure, and review thresholds still await subsequent implementing regulations.

Technology and Data Transfer

The Regulation made clear that outbound investment cannot be used to legitimize transferring abroad, without the necessary regulatory approval, technology and data subject to Chinese export controls and privacy and data security restrictions.

Specifically, Article 13 of the Regulation generally prohibits investors conducting outbound investments from (1) exporting, using, or otherwise transferring goods, technologies, services, or relevant data that are prohibited from export under Chinese law, or (2) engaging in these activities without a proper license regarding restricted goods, technologies, services or relevant data. It goes further and expressly prohibits engaging in the prohibited activities through indirect means, such as relocating technical personnel overseas, providing cross-border technical guidance, and arranging overseas training programs. Prior to the Regulation, some PRC investors might have adopted a view that such activities were in a legal grey area, as they were not explicitly prohibited. Article 13 now closes this perceived loophole.

As for cross border data transfer, Article 14 confirms that such data flows in the course of outbound investments remain governed by their respective legal regimes, such as the Data Security Law, Cybersecurity Law and the Personal Information Protection Law, and the relevant regulations thereunder. Prior to making any outbound investment, investors should assess whether the data they intend to provide to overseas entities involves core data, important data, personal information (including sensitive personal information), or other data that may have an impact on national security. Depending on the nature and volume of the data involved, investors may be prohibited to transfer such data outside China, or be required to conduct a security assessment, obtain certification, or enter into a China standard contract for personal information export before transferring data overseas. For Chinese persons and entities involved in litigation or government investigations abroad, Article 22 is a reminder to comply with the relevant Chinese laws and regulations when providing evidence and other materials to foreign entities.

The Regulation may be targeting transactions prompted by Chinese parties’ desire to mitigate the practical impact of certain trade or investment restrictions implemented by other jurisdictions and frequently also involve non-PRC parties. For example, in response to the “prohibited foreign entity” restrictions enacted by the US Congress in the One Big Beautiful Bill Act (OBBBA), PRC companies within certain relevant sectors may want to transfer a controlling ownership interest and actual control in a non-PRC subsidiary possessing significant Chinese-origin IP and sensitive data to a non-PRC party.  As further explained above, any non-PRC party contemplating engaging in such transactions should take note of the now explicit prohibitions and the related implications under PRC law.

Barrier Investigations and Countermeasures

The Regulation also establishes various countermeasures for foreign countries and entities that engage in discriminatory measures against Chinese investors abroad.

• Article 23: Where investors encounter trade-related investment barriers or other obstacles abroad, the relevant State Council agencies may investigate and may adjust investment policies specific to that country, or restrict relevant imports, exports, or trade in services.
• Article 24: Where foreign countries adopt discriminatory measures against China in violation of international law or basic norms of international relations, the relevant State Council agencies may, in accordance with the Anti-Foreign Sanctions Law, place organizations and individuals that directly or indirectly participated in the formulation, decision-making, or implementation of such discriminatory measures on a countermeasures list and adopt corresponding actions against them.
• Article 25: Where a foreign organization or individual violates normal market transaction principles by interrupting ordinary commercial dealings with Chinese investors, or adopts discriminatory measures against investors or their overseas investments and unreasonably deprives or restricts their lawful rights and interests, the relevant State Council agencies may adopt a range of countermeasures such as import and export restrictions, investment prohibitions, and restricting Chinese entities from engaging in transactions with such parties.

Thus, a non-PRC party complying with a non-PRC jurisdiction’s restrictions on Chinese investors or investments may become a trigger for Chinese countermeasures (or, sanctions), as expressly authorized under the Regulation.

Practical Implications

The Regulation demonstrates that China increasingly views outbound investment through a national security lens. This is especially the case when companies do not merely invest capital overseas, but also move entire or substantial operations abroad—and, along with them, the technical know-how key to China’s competitive advantages in certain high-tech areas and protected data under Chinese law. The Regulation provides for penalties, including criminal ones when appropriate, and other significant consequences for non-compliance. For example, Article 28 of the Regulation authorizes the review mechanism to order ex-post-facto divestment of already-completed transactions. Thus, companies contemplating transactions involving Chinese-origin assets, especially within the AI, advanced technology or another sensitive sector (e.g., critical minerals), should (1) be mindful of the Chinese law risks, including those related to PRC regulatory approvals and purchasing/possessing unlawfully transferred assets under Chinese law, and (2) conduct proper due diligence on related issues as early as possible.

The Regulation also further strengthens China’s legal toolkit for responding to perceived discriminatory or other unjust foreign restrictions on commercial activities related to China, heightening conflict-of-laws issues and compliance exposure for multinational companies. The countermeasures provided in the Regulation echo similar provisions in the recently published Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States and Regulations on Industrial and Supply Chain Security (see our prior Legal Update). As geopolitical tensions rise and major jurisdictions (including the United States, China, and the European Union) tighten their respective rules to advance distinct national or regional interests, multinational companies frequently find that the principle of complying with applicable laws of all jurisdictions has become increasingly more complex and difficult to achieve. In view of this trend, multinational companies should map out, with respect to all major jurisdictions relevant to its operations, the legal triggers most relevant to their business and assess vulnerabilities including potential conflict-of-laws risks. A comprehensive perspective is required for effective risk management under the current environment.

Lastly, while the Regulation’s language is specific on certain subjects (such as the prohibitions on unauthorized transfers of controlled technology and protected data), it leaves out much detail on some key issues, such as how the outbound investment review mechanism will work in practice. Pursuant to the Regulation, the relevant PRC agencies will likely publish implementing regulations in the near future. As companies assess their exposure under this Regulation (and the other recent regulations), they should also keep a close eye on the (likely) forthcoming implementing regulations.