China is erecting walls to prevent money, technology and companies from leaving the country.
This week, the State Council, China’s cabinet, announced new regulations requiring national security screening for Chinese companies seeking to invest abroad. The move follows rules introduced in April that allowed authorities to intervene when foreign companies tried to move supply chains out of China.
Together, the measures form a new blueprint for the economic fortress China is building around its technology and supply chains amid rising tensions with Europe and the United States.
The rules are yet another sign that the economic principles of open markets and free trade that have governed much of the world for decades and helped fuel China’s extraordinary rise are giving way to a more fragmented era.
From Washington to Brussels, the world’s largest economies are choosing trade barriers over greater economic integration, driven in part by heightened concerns over China’s global dominance in raw materials, manufactured goods and technology and a surge in Chinese products around the world.
“We have moved away from a world where laws made it easier to allow the flow of capital, people, technology and trade to circulate,” said Ben Kostrzewa, a partner and trade expert at Hogan Lovells in Hong Kong.
“The Chimerica economy envisioned 20 years ago turned out to be chimerical,” he said, referring to the once-popular portmanteau of China and America.
Beijing has already offered a taste of what this new era could look like. It blocked Meta’s $2 billion purchase of Manus, an artificial intelligence company founded by Chinese engineers. It told Chinese refiners, which were sanctioned by the US, not to comply. And it ordered a state-backed security equipment company not to cooperate with EU investigators.
With each action, Beijing moves closer to a confrontation with the United States and Europe.
Focus on national security
Chinese policymakers have built a growing arsenal of export controls, countermeasures and trade penalties in response to tariffs and other restrictions imposed by foreign governments.
The new State Council rules extend that effort to the overseas activities of Chinese companies and outline how Beijing could retaliate against foreign companies and individuals when restricting Chinese investment.
The rules also give authorities new powers to scrutinize Chinese companies seeking opportunities abroad and subject them to national security assessments that place investments in one of three categories: encouraged, restricted or prohibited.
Part of the motivation for this, lawyers say, is to keep money, talent and intellectual property in areas where China has a competitive advantage from leaving the country.
Foreign companies in China worry that the measure could be interpreted broadly enough to include data from Chinese operations that they must provide to international regulators as part of investigations or investment reviews.
China also cracked down on outbound investment a decade ago, targeting what it called “irrational” deals by corporate giants seeking trophy assets like the Waldorf Astoria. But these interventions were aimed at reducing domestic financial risks and largely involved banking regulators scrutinizing company balance sheets.
The new framework is different. Its focus is national security, and efforts are far more coordinated.
Green light, red light
New in the rules unveiled this week are efforts to curb the overseas expansion of Chinese companies.
The measures restrict the movement of certain talent in sectors deemed sensitive, although Beijing has not defined which sectors qualify. They also give officials broader authority to review capital movements, including the power to force investors to sell shares or halt investments if national security concerns arise.
The rules also provide the legal basis for regulators to prevent foreign entities from investing or operating in China, including expelling them from the country, in retaliation for actions taken by their governments against Chinese investment.
For some experts, the most striking effect of these rules is that they can limit the ambitions of Chinese companies when they are under intense pressure to find new markets and the country’s exports are reaching record levels.
“China has encouraged companies to go overseas to set up manufacturing facilities, invest and circumvent any restrictions that may exist on manufacturing in China,” said Lester Ross, a longtime China expert and senior adviser at Wilmer Hale.
Still, these new rules could complicate that, he added.
Chinese officials are calling the new rules a “milestone” for outbound investment. But for many investors, the vague definition of what constitutes a national security issue has led to considerable uncertainty.
Déjà Vu?
The idea that companies or individuals need approval to invest abroad may seem unusual. But China has long restricted money flows out of the country and currently limits individuals to moving $50,000 abroad each year. That tool has become increasingly important as economic growth has slowed.
Nor is China the first country to screen outbound investment. In 2024, the Biden administration imposed restrictions on US funding of Chinese semiconductor, quantum computing and artificial intelligence sectors.
The European Union has also called on its member states to review investments in the same sensitive sectors.
But unlike the US and Europe, Beijing has defined national security much more broadly. And its rules are correspondingly more expansive.
For lawyers and trade advisers, the flurry of restrictions from multiple governments signals the end of an era.
The Chinese government cited “profound changes not seen in a century” as justification for the new State Council rules. The argument resonated with Zhou Yong, a lawyer at Junhe, a Chinese law firm.
“From a legal point of view, the restructuring of international business rules has been caused by great power competition and technological advances,” said Mr. Zhou.
“China,” he added, “hopes to have some tools of its own.”
