New outbound investment rules take effect July 1; indirect technology transfers banned; violations may trigger asset seizure; Chinese researchers propose list of 63 export-controlled technologies targeting US

Chinese President Xi Jinping salutes during the 10th Martyrs' Day commemoration ceremony at Tiananmen Square in Beijing in September 2023, the day before China's National Day. [Getty Images]
Chinese President Xi Jinping salutes during the 10th Martyrs' Day commemoration ceremony at Tiananmen Square in Beijing in September 2023, the day before China's National Day. [Getty Images]

By Seo Ji-yeon, The Herald Business

China is sharply tightening its outbound investment rules to prevent AI, advanced technology and data from flowing abroad — a move widely interpreted as Beijing building a defensive shield around its technological sovereignty in response to US efforts to cut off Chinese access to critical technologies.

China's State Council promulgated the "Regulations on Outbound Investment" on Sunday, with the rules set to take effect July 1, according to state-run Xinhua News Agency. The 34-article regulation prohibits companies and individuals from transferring state-restricted technologies, data and services overseas without government approval in the course of outbound investment activities.

The rules also cover indirect transfers — including sending technical personnel abroad or placing them with foreign companies as a means of circumventing restrictions on technology and data.

Penalties have been significantly strengthened. Authorities may order the suspension of investments and disposal of assets when they determine an investment falls under state-prohibited categories, and may confiscate illegal proceeds. Parties that fail to comply face fines of up to 1 percent of the investment amount.

Singapore's Lianhe Zaobao noted that this marks the first time China has codified explicit penalty provisions for outbound investment violations.

The new rules also establish grounds for retaliating against foreign governments or companies that impose discriminatory investment restrictions on Chinese entities. Under the regulation, China may restrict or prohibit investments and market transactions by companies from countries that limit Chinese investment.

The move comes as the United States has been tightening restrictions on China across advanced industries including semiconductors and AI, prompting Beijing to strengthen its own scrutiny of outbound investment on national security grounds.

China blocked Meta's acquisition of Chinese AI startup Manus in April, one of the more prominent recent cases of Beijing rejecting a foreign takeover of a Chinese technology company.

China's Ministry of Commerce described the measures as designed "to protect the legitimate rights and interests of Chinese investors and their outbound investment activities," calling them "protective and defensive measures to prevent China's overseas interests from being threatened or infringed upon."

State-run Global Times characterized the regulation as a legal mechanism to maintain a high level of openness while countering discriminatory investment restrictions imposed on Chinese companies.

Fu Fangjian, a professor at Singapore Management University, told Lianhe Zaobao the rules reflect "a more sophisticated approach to managing investments related to AI, advanced technology and cross-border data flows," adding that they are not intended to restrict Chinese companies in strategic industries such as electric vehicles from expanding overseas.

Chinese academics have also begun openly debating potential export controls targeting the United States and its allies.

Researchers from institutions including the Chinese Academy of Science and Technology for Development Strategy and the China Academy of Engineering Physics jointly published a report recently proposing a list of 63 strategic technologies that could become subject to export controls, according to the South China Morning Post.

The list spans advanced materials, quantum communications, AI hardware, energy systems, biotech and aerospace technology. More specific items cited include satellite-based quantum cryptography communications, electromagnetic catapult systems, space robots, space-based optical communications, quantum device manufacturing and deep ultraviolet LED technology.

The researchers cautioned that the report is academic in nature and should not be interpreted as imminent policy. Analysts say its significance lies in the fact that discussions about technology security and technological sovereignty are now taking place openly within China.

The SCMP observed that while Chinese technology policy has long focused on acquiring technology and catching up industrially, debate has now shifted in earnest to which technologies China should keep from going abroad — a sign, it said, that China is broadening its strategic ambitions from being a technology power to becoming a technology-controlling state.


sjy@heraldcorp.com