China’s Overseas Investments: A New Regulatory Framework Emerges
This article was originally published in Italian on Class on July 31st 2026.
Please note that this is a courtesy translation of the Italian language article originally published on Class Issue at: https://www.classxhsilkroad.it/news/politica-economica/investimenti-cinesi-all-estero-ecco-il-nuovo-quadro-normativo-202607311129479295
On 1st July, China's State Council brought into force the Regulations on Outbound Investment (State Council Decree 837). While outbound direct investment (ODI) continues to be administered by the Ministry of Commerce and the National Development and Reform Commission, the fact that these regulations have been issued directly by the State Council is significant. It signals the elevated political importance that Beijing now attaches to outbound investment. Previously, the State Council only provided direction through guiding opinions.
On the surface, the regulations seek to provide a comprehensive framework governing China's outbound investment. Yet several provisions are drafted in sufficiently broad terms to create new uncertainties, particularly for European companies operating in China.
Article 2 states that the regulations apply to "outbound investments by investors within the territory of the People's Republic of China", defining investors as "enterprises, other organisations, and individual residents within China". Although foreign-invested enterprises (FIEs) are not explicitly mentioned, the wording suggests they could fall within the scope of the legislation.
Article 25 is similarly broad. It provides that where foreign organisations or individuals "endanger China's national sovereignty, security, or development interests", "violate normal market transaction principles by interrupting normal transactions with Chinese enterprises, other organisations, or individuals", or "take discriminatory measures against investors and their outbound investments", the State Council may take responsive measures. Yet the regulation offers no definition of what constitutes a threat to national sovereignty or a violation of normal market transaction principles.
Article 23 goes further by establishing the legal basis for retaliatory measures against third countries. It empowers the State Council to "take measures to adjust relevant country-specific investment policies, prohibit or restrict the import and export of goods, technology, or international trade in services" where Chinese investors "encounter trade-related investment barriers or obstacles to investment and operation in the destination country (region)".
Viewed in isolation, these provisions are noteworthy. Viewed alongside recent legislation, however, they form part of a much broader trend.
Decree 837 follows closely behind two other security-focused regulations adopted by the State Council earlier this year: the Regulations on the Security of Industrial and Supply Chains (Decree 834) and the Regulations on Countering Improper Extraterritorial Jurisdiction by Foreign States (Decree 835), both issued in April 2026.
The first seeks to "guard against security risks in industrial and supply chains, enhance their resilience and security, and safeguard economic and social stability as well as national security". It authorises investigations and countermeasures against foreign organisations or individuals that "disrupt normal trade with Chinese citizens and organisations", impose discriminatory measures, or "cause actual damage or pose a threat of causing actual damage" to China's industrial and supply chains.
The second serves as a defensive instrument against the extraterritorial application of foreign laws, while simultaneously reaffirming China's own ability to apply extraterritorial measures when deemed necessary. In doing so, it further expands the legal tools available to influence international commercial activity and global supply chains.
Taken together, these decrees should be understood as part of China's broader effort to strengthen its counter-sanctions regime and build a legal architecture increasingly centred on national security.
For European companies, the implications are potentially significant. Businesses may find themselves caught between conflicting legal obligations between the European and Chinese legal frameworks. European supply chain due diligence legislation, for example, requires companies to conduct extensive audits and collect information throughout their supply chains to demonstrate transparency. In certain circumstances, gathering that information precisely could expose companies to risks under Chinese law.
The extensive use of undefined concepts throughout the three decrees also provides uncertainty. Broad notions such as "national security", "development interests" or "normal market transaction principles" leave considerable room for interpretation. This increases the possibility that legitimate commercial decisions could, in some circumstances, be construed as violating the legislation. In a worst-case scenario, such provisions could become coercive instruments used to pressure companies into complying with political objectives that lie well beyond ordinary commercial considerations.
Ultimately, the regulations leave businesses with more questions than answers. Further implementation guidelines are needed to clarify whether, and under what circumstances, foreign-invested enterprises fall within the scope of these measures, as well as to define the key legal concepts upon which they rely.
At a time of rising geopolitical tensions and growing regulatory fragmentation, providing such clarity would not simply reduce legal uncertainty. It would also offer China an opportunity to demonstrate that national security objectives can coexist with the transparent and predictable investment environment that international businesses continue to seek.
The establishment of a joint monitoring mechanism to exchange relevant data, monitor trade flows and support technical work, agreed during the late June meeting between European Commissioner for Trade and Economic Security Maroš Šefčovič and Chinese Commerce Minister Wang Wentao, is therefore a welcome development. While the EU continues to maintain one of the world's most open investment regimes, it too is introducing targeted economic security safeguards. How this dialogue develops—and whether it can provide greater predictability for businesses and investors on both sides—will be closely watched.
Edited by: Carlo Diego D’Andrea, Managing Partner of D’Andrea & Partners Legal Counsel and National Vice President of the European Union Chamber of Commerce in China (EUCCC).
