China enforces national security rules on overseas investments amid intensifying tech competition

China imposes 'national security' rules on overseas investments

Beijing (AFP) - China is intensifying its scrutiny of investments overseas with broad "national security" regulations taking effect from Wednesday, at a time of rising tech competition with Washington. The new rules, originally announced on June 1, provide authorities with a sweeping legal framework to influence flows of capital and personnel across China's borders. 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. The 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". Beijing is looking to protect domestic AI prowess in its competition with Washington, but the new rules risk cutting off other parts of the world from Chinese investments, Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis, told AFP. "This is terrible for Europe, because if anybody were to believe that we would rely on China's open-weight (AI) models, this is wrong -- we can't," she said, adding that the continent also cannot depend on Chinese talent to develop its own models due to Beijing's stringent cross-border curbs. With the US-China tech race showing no signs of stopping, Europe will need to seek strategic partnerships with other key players, including South Korea and Japan, "if they want to stand a chance of not becoming too dependent", she said.

China used foreign tech to rise, but now it's slamming the door

China, once a keen learner of Western technology, is now shifting gears to protect its own innovations. New outbound investment rules, effective July 2026, signal a move from technology absorption to stringent protection. Beijing now views its advanced AI, chip, and green tech as strategic assets, aiming to prevent its hard-won know-how from leaving the country amidst escalating global tech competition. For decades, China's rise as an industrial and technological power was built on learning from the West. It absorbed Western technology (and was often accused of stealing it), and used the country's vast market to accelerate domestic capabilities. American, European and Japanese firms entered China with capital, technology and expertise. Chinese companies emerged from those partnerships stronger, more sophisticated and increasingly capable of competing globally. Now, as China has become a leading force in fields such as artificial intelligence (AI), semiconductors, electric vehicles and green technology, Beijing is rewriting the rules. The new outbound investment regulations that took effect on July 1, 2026 indicate a big turn from technology absorption to technology protection. The old model: Technology for market access China's economic transformation after the reform era of the late 1970s depended heavily on foreign investment. Through the 1980s and 1990s, multinational corporations were drawn by the promise of access to the world's largest emerging market. Yet access often came with conditions. Foreign manufacturers entering China were frequently encouraged, and in some sectors effectively required, to establish joint ventures with local partners. These arrangements helped China attract investment and jobs, but they also served a broader strategic purpose. Chinese companies gained exposure to production techniques, supply-chain management, engineering expertise and advanced technologies that were often unavailable domestically. In industries ranging from automobiles and electronics to telecommunications equipment, foreign firms trained Chinese workers, shared manufacturing processes and helped build local industrial ecosystems. The transfer was not always formal. Much of it occurred through daily collaboration, personnel exchanges and the gradual accumulation of know-how. Western governments and businesses complained for years that China's development model encouraged technology transfers that went beyond normal commercial practice. Those concerns later evolved into accusations of forced technology transfer, intellectual property violations and industrial policies designed to help Chinese companies catch up with foreign rivals. Whatever the merits of those criticisms, the strategy worked. China steadily moved from assembling foreign products to designing its own. It climbed the manufacturing value chain and built globally competitive firms in sectors that had once been dominated by Western companies. Also Read | China begins to snap at America's heels in a tightening tech race China reaches the technology frontier The logic underpinning China's new regulations shows that it no longer sees itself primarily as a technology importer. Today, China regards artificial intelligence, advanced chips and green technology as strategic assets central to economic growth, industrial competitiveness and national security. Chinese firms have become major innovators rather than mere adopters. That transformation is visible across multiple industries. Chinese electric vehicle manufacturers are competing aggressively in international markets. Chinese AI developers have produced increasingly sophisticated large-language models. Domestic semiconductor companies are investing heavily to reduce dependence on foreign suppliers. As China's technological position has strengthened, concerns in Beijing have shifted. The question is no longer how to obtain foreign know-how. It is how to prevent Chinese know-how from leaving the country. The State Council's new Regulation on Overseas Investment creates a comprehensive legal framework governing outbound investment, technology transfers and cross-border movement of expertise. According to the regulations, outbound investment must adhere to China's "overall national security concept" while balancing domestic and international considerations. A new era of technology protection The significance of the new rules extends far beyond investment approvals. Under the framework, authorities can review overseas investments and transfers that may affect national security. Existing restrictions that already apply to goods and data are now extended to services. That means technical training abroad, the deployment of experts overseas and other forms of knowledge sharing can come under scrutiny. The regulations specifically target channels through which sensitive technologies might leave China. According to an analysis by business consultancy Dezan Shira & Associates cited by the South China Morning Post, Chinese entities are prohibited from exporting or transferring restricted technology through technical training, cross-border staffing arrangements or remote technical assistance. Joint ventures, technology licensing agreements and cross-border research collaborations could face export-control reviews and data-compliance requirements. Christopher Beddor, deputy China research director at Gavekal Dragonomics in Hong Kong, told the South China Morning Post that Chinese companies and investors are the primary target. "Foreign operations cannot be used as a channel to move sensitive Chinese-origin technologies beyond Beijing's oversight," he said. His observation captures the essence of Beijing's new approach. The Chinese state increasingly views overseas operations not simply as commercial activities but as potential conduits for the leakage of strategically valuable knowledge. Also Read | Singling out Huawei, China's premier defends tech rise, rejects subsidy claims The tech war context The regulations cannot be understood without considering the broader deterioration in China's technology relationship with the United States and parts of Europe. In recent years, Western governments have imposed export controls, sanctions, investment restrictions and blacklisting measures aimed at limiting China's access to advanced technologies. Semiconductor restrictions introduced by the US have become a defining feature of the broader US-China technology rivalry. The State Council's new regulation explicitly authorises what it calls "necessary and defensive measures" to protect Chinese investors and interests overseas against foreign trade barriers. It also empowers authorities to investigate foreign trade-related restrictions and coordinate responses. Chinese officials have described the law as a "milestone" in the country's outbound investment regime. The message is that Beijing increasingly views investment policy through the lens of strategic competition rather than purely economic efficiency. The shift reflects a broader trend in which technology, capital and national security have become deeply intertwined. Manus, Meta and Beijing's growing suspicion Recent events illustrate how sensitive Beijing has become about cross-border technology transactions. In April, Chinese authorities reportedly blocked an attempt by Meta to acquire Manus, an AI startup created by a company founded in China but now based in Singapore. Reports in March indicated that Manus' two co-founders had been prevented from leaving China while the proposed transaction was under review. The case highlighted Beijing's growing concern that valuable Chinese-developed technologies could ultimately end up under foreign control. The new regulations effectively institutionalise that concern. Instead of dealing with individual transactions on an ad hoc basis, authorities now have a broader legal framework through which they can monitor and potentially restrict technology transfers linked to overseas investments. The regulations also follow disputes involving companies such as Nexperia, the Dutch semiconductor company owned by China's Wingtech Technology, underscoring how technology-related investments have become increasingly entangled in geopolitical tensions. Europe faces new challenges The implications extend well beyond China and the US. Alicia Garcia-Herrero, Asia-Pacific chief economist at Natixis, told AFP that the new restrictions could have serious consequences for Europe's technology ambitions. Beijing is looking to protect domestic AI prowess in its competition with Washington, but the new rules risk cutting off other parts of the world from Chinese investments, she said. "This is terrible for Europe, because if anybody were to believe that we would rely on China's open-weight (AI) models, this is wrong -- we can't," she said, adding that the continent also cannot depend on Chinese talent to develop its own models due to Beijing's stringent cross-border curbs. "With the US-China tech race showing no signs of stopping," she added, Europe may need to deepen strategic partnerships with countries such as South Korea and Japan if it wants to avoid excessive dependence on either technological superpower. Her assessment highlights an important consequence of China's new approach. For years, policymakers in Europe viewed Chinese investment as a source of capital, technology partnerships and research collaboration. Those assumptions may now need to be reconsidered. What it means for global business For multinational companies, the practical impact of the regulations remains uncertain. Much will depend on how aggressively they are enforced. James Zimmerman, chairman of the American Chamber of Commerce in China, told the South China Morning Post that American companies are closely monitoring the law. "It's too early to suggest that there has been a broad recalibration of relationships with Chinese partners," Zimmerman said. "What matters is that investment takes place within a transparent, predictable regulatory environment." He added: "As with any significant regulatory development, companies will continue to monitor implementation closely and ensure that they understand any compliance implications for their operations and business relationships." Charles Chang, a finance professor at Fudan University in Shanghai, told the South China Morning Post that China is unlikely to directly target foreign companies because Beijing still wants to attract international investment. Yet even if foreign firms are not the direct focus, the compliance burden surrounding data transfers, technology cooperation and cross-border research projects is likely to increase. China's great tech turn China's new outbound investment regime represents one of the clearest signs yet of how dramatically the country's position in the global technology landscape has changed. The nation that once relied so much on foreign expertise to accelerate its industrial development is now seeking to ensure that its own technological advances do not flow abroad without state oversight. The mechanisms are different, but the strategic logic is familiar. In the past, China used market access to absorb knowledge from foreign companies. Today, it is using regulatory power to prevent rivals from gaining access to Chinese knowledge. That reversal says as much about China's technological success as it does about the intensifying geopolitical contest shaping the global economy. Having spent decades learning from the world, Beijing now believes it has innovations worth guarding. The era of China as a technology student is over. The era of China as a technology gatekeeper has begun.