China imposes 'national security' rules on overseas investments, including offshore tech transfers
The regulations emphasize economically vital sectors and require compliance with investigative cooperation, raising concerns among investors.A chinese flag is seen in the financial district of Shanghai on April 7, 2025 (AFP)China is intensifying its scrutiny of investments overseas with broad "national security" regulations taking effect from Wednesday. According to the State Council’s 34-article Regulation on Overseas Investment authorises “necessary and defensive measures” to protect Chinese investors and interests overseas in response to foreign trade-related barriers.Regulation on outbound direct investmentUnder the new rules, originally announced on June 1, the government will probe trade-related investment barriers imposed by foreign countries and coordinate retaliatory responses. Officials labelled the law a “milestone in the history of China’s outbound investment development”.Also known as the 2026 regulation on outbound direct investment (ODI), Beijing’s new law requires Chinese investors to cooperate with authorities during any investigations overseas, the South China Morning Post reported.Beijing sees fields such as artificial intelligence, computer chips and green technology as economically and strategically vital and has vowed to promote their domestic development.Enhance quality and level of outward investmentThe new measures are intended to "enhance the quality and level of outward investment", according to the provisions laid out by the State Council, China's cabinet.However, some investors worry they will restrict the ability of China's bustling and sprawling tech ecosystem to access global markets.Outbound investment should adhere to the "overall national security concept", the regulations state, while aiming to "balance domestic and international considerations".The new framework also authorises the government to conduct reviews of investments or transfers that could impact national security.Beijing often views cross-border transactions with suspicion, with its top economic planning body striking down in April an attempt by Facebook owner Meta to acquire AI startup Manus, which was created by a company founded in China but now based in Singapore.Under the new rules, existing curbs on cross-border transfers will extend beyond goods and data to include the export of services, through sending technical experts abroad or carrying out training overseas.The US-China Economic and Security Review Commission said on social media this week that the move reinforces a trend it has tracked for months.The bipartisan commission warned in May that, "as is often the case for China's national security-related laws, enforcement authorities have immense discretion to determine what constitutes a violation, creating further risk for foreign firms".China places Japanese entities on control listIn a related development, China's Commerce Ministry on Monday placed 20 Japanese entities, including multiple divisions of Mitsubishi Corporation, on a control list, which prohibits Chinese and foreign exporters from selling to them dual-use items made in China. Dual-use items can be used for both civilian and military purposes.Additionally, 20 other entities have been added to a watch list for dual-use items, according to the ministry. It includes Mitsui E&S, which makes engines and other equipment for ships, as well as divisions of Fujitsu and Komatsu corporations, the Associated Press reported.Chinese companies exporting to these firms will be required to apply for special licenses, submit risk assessment reports on the Japanese companies and written pledges that the dual-use items will not be used for military purposes.China imposes export controls on 10 US companiesLast week, China had also imposed export controls on 10 US companies involved in defence and rare earths mining in response to Washington's
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