"You Can't Invest Your Own Money Freely": China Imposes Stronger Controls Amid Concerning Capital Flows

State Council to Implement New Regulations Next Month
Blocking Overseas Outflow of AI and Advanced Technologies

China has moved to strengthen regulations on outbound investment to block the overseas transfer of artificial intelligence (AI), advanced technology, and data.

According to recent reports by China's state-run Xinhua News Agency, the State Council has promulgated the "Regulations on Outbound Investment," which will take effect from July 1. The new regulations, consisting of 34 articles, prohibit companies or individuals from transferring products, technologies, services, or data—designated as restricted by the state—abroad without government approval in the course of overseas investment. In addition, the regulations ban the indirect transfer of restricted technologies and data by dispatching technical personnel abroad or by facilitating employment at foreign companies.

Anthropic logo. Photo by Reuters Yonhap News

If an investment is deemed to fall under the prohibited categories, authorities may order the suspension of the investment and disposal of assets, as well as confiscate any illegal gains. Furthermore, if these orders are not followed, a fine of up to 1% of the investment amount may be imposed. The new regulations also stipulate that if a foreign government or company implements discriminatory restrictions on Chinese investment, China may also take reciprocal measures such as investment restrictions and market trading bans. Accordingly, investments and market transactions by the affected foreign companies or institutions within China may be restricted.

According to China's Ministry of Commerce, the new regulations are "measures to protect the legitimate rights and interests of Chinese investors and overseas investment activities, and to prevent Chinese interests abroad from being threatened or infringed upon." The ministry added that the regulations are protective and defensive in nature and will not interfere with normal market transactions.

With major initial public offerings (IPOs) by U.S. technology companies such as SpaceX and Anthropic imminent, additional measures have been implemented to prevent private capital from flowing into the U.S. stock market. Recently, the China Securities Regulatory Commission has completely banned overseas securities firms and asset management companies from soliciting investors and opening accounts within mainland China. Existing investors will be given a two-year grace period, but during this period, new purchases and additional deposits are prohibited. Only the sale of held assets or withdrawal of funds from accounts will be permitted.

To invest in overseas markets from China, individuals must subscribe to funds established by Qualified Domestic Institutional Investors (QDII). Through these funds, indirect investment in exchange-traded funds (ETFs) tracking the NASDAQ or S&P 500 indices is possible, but direct purchases of stocks listed in countries such as the United States or Japan are not allowed. As a result, many Chinese retail investors have invested in the U.S. stock market through mobile apps of Hong Kong and overseas internet securities firms. Bloomberg News estimated that, last year, short-term capital outflows from China via unauthorized channels reached $1.04 trillion (approximately 1,605 trillion won), the highest since 2006.

This content was produced with the assistance of AI translation services.