China Tightens Outbound Investment Controls From Technology Transfers to Equity Markets, as the EU Raises Regulatory Barriers to Prevent a ‘Second Nexperia Case’

Revised Chinese outbound investment rules restrict technology transfers and tighten investment reviews
“Stop capital flight” — Beijing escalates crackdown on mainland investors’ overseas stock investments
Europe, scarred by the Nexperia episode, takes a harder line against Chinese M&A attempts

The Chinese government has formally unveiled a new set of outbound investment regulations. The measures expand regulatory oversight to prevent the leakage of technology and data through overseas investments while strengthening national security controls. This preference for national security and industrial competitiveness over the free movement of capital is increasingly evident across major economies. The European Union (EU), in particular, has accelerated the construction of higher regulatory barriers, with the European Commission directly intervening to block Chinese investments and merger-and-acquisition (M&A) attempts in strategic industries.

China Raises the Bar on Outbound Investment Controls

According to the South China Morning Post (SCMP) on June 1, Chinese Premier Li Qiang signed and promulgated the “Regulations on Outbound Investment.” The new rules expand the Chinese government’s review authority over technology and data transfers, as well as transactions involving national security concerns, arising from overseas investment activities. Going forward, Chinese companies will be prohibited from transferring or using abroad any technology, services, data, or goods whose export has been banned by the state. Even restricted items will require prior government approval. Indirect transfer activities—including overseas deployment of technical personnel, organization of overseas work assignments, cross-border technical guidance, and the operation of overseas training and education programs—will also be prohibited.

The overseas investment approval process itself has become significantly more stringent. Companies must complete all relevant licensing and registration procedures before proceeding with investments, while investment reporting requirements and cross-border capital registration have been made mandatory. Firms must also cooperate with regulatory investigations. Companies that obtain investment approvals through false submissions or concealment of facts will face corrective orders, confiscation of illegal gains, and fines ranging from 0.1% to 0.5% of the investment amount. Approvals obtained through bribery or deceptive conduct may likewise be revoked and accompanied by financial penalties.

The regulations also formally codify national security review authority. Under the new framework, the Chinese government has the right to conduct security reviews of overseas investments and related asset disposals that affect, or could potentially affect, national security. Mainland companies investing in prohibited overseas sectors will face fines of up to 1% of the investment amount, while firms violating national security review requirements may be barred from overseas investment activities for up to three years. In extreme cases, authorities may order the forced disposal of overseas assets or equity holdings. The rules apply equally to investments in Hong Kong, Macau, and Taiwan.

Overseas Equity Investment Channels Also Sealed Off

China has continued tightening controls on overseas stock investments by domestic investors. The regulatory approach has evolved beyond broad restrictions toward direct oversight of individual investors and corporate activities. On May 22, the China Securities Regulatory Commission and seven other government agencies imposed a combined $330 million in fines on overseas online brokerages including Tiger Brokers, Futu Holdings, and Chaoqiao Securities for allegedly conducting illegal cross-border securities operations, while also confiscating unlawful gains. The move further strengthens restrictions first introduced in 2022 that prohibited overseas brokerages from acquiring new mainland Chinese clients. Authorities have also ordered the complete shutdown of these firms’ overseas securities services targeting mainland investors, including related websites, mobile applications, and server operations, within the next two years.

Existing investors have also fallen within the scope of the crackdown. Mainland Chinese users of these platforms are now prohibited from making additional deposits or purchasing new securities and may only sell existing holdings and withdraw funds. The measure is widely viewed as a hardline effort to curb capital outflows. Chinese retail investors had long accessed overseas markets indirectly through internet-based brokerages headquartered in Hong Kong and Singapore. Many utilized the annual personal foreign exchange quota of approximately $50,000 or purchased Hong Kong insurance products before receiving refunds as a means of moving capital abroad. Some investors reportedly relied on underground currency-exchange networks as well.

According to Bloomberg Intelligence, unofficial capital outflows from China reached approximately $1.04 trillion last year, marking the highest level since related records began in 2006. Chinese authorities believe such capital flight exacerbates yuan exchange-rate instability and broader financial risks. Policymakers are particularly concerned that funds flowing into U.S. and Hong Kong equity markets weaken liquidity in mainland exchanges and undermine the central bank’s ability to control domestic capital markets.

EU Intensifies Scrutiny of Chinese Capital

This government-led tightening of overseas investment oversight is not unique to China. On May 28, for example, the European Commission announced the launch of an in-depth investigation under the Foreign Subsidies Regulation (FSR) into Chinese e-commerce giant JD.com’s proposed acquisition of European electronics retailer Ceconomy. JD.com had previously announced in April its intention to acquire Ceconomy for approximately $2.5 billion. The FSR was designed to prevent companies receiving subsidies, low-interest loans, tax benefits, or other forms of support from non-EU governments and public institutions from gaining unfair competitive advantages within the EU market. EU authorities currently suspect that JD.com may have benefited from support provided by the Chinese government and state-owned financial institutions, enabling it to participate in the acquisition process on more favorable terms than competitors.

One reason the EU has become increasingly sensitive to Chinese M&A activity is the precedent established by Nexperia. Nexperia originated as the standard semiconductor division of Dutch chipmaker NXP. In 2016, NXP sold the business unit to Chinese investment funds JAC Capital and Wise Road Capital, and Nexperia was launched as an independent company in 2017. Following the acquisition of Nexperia by Chinese smartphone original design manufacturer (ODM) Wingtech Technology in 2019, the company was effectively transformed into a European semiconductor enterprise controlled by Chinese capital.

After the transaction was completed, Nexperia embarked on an aggressive capacity expansion strategy, drawing attention to its relationship with Newport Wafer Fab in Wales, United Kingdom. Newport Wafer Fab, one of Britain’s largest semiconductor manufacturing facilities, was acquired by Nexperia in July 2021, when Nexperia was both a major customer and shareholder. The controversy stemmed from concerns among British politicians and national security experts, who viewed the deal as a de facto entry point for Chinese capital into the UK semiconductor industry. As semiconductors assumed greater importance as a strategic industry tied to national security and supply-chain resilience, fears intensified that China was gaining leverage over a critical British sector. Although the UK government did not initially block the transaction, mounting concerns ultimately led authorities to launch a review in 2022 under the National Security and Investment Act (NSIA). The government subsequently cited concerns over Newport’s future research and development (R&D) capabilities, supply-chain control, and influence over strategic industries, ordering Nexperia to divest more than 86% of its stake in Newport. Despite Nexperia’s objections, the UK government maintained its position, and Newport Wafer Fab was ultimately sold to U.S. semiconductor company Vishay Intertechnology in 2023.

Tensions surrounding Nexperia have persisted. In September of last year, amid concerns that the company’s technology and core production capabilities could be transferred to China, the Dutch government invoked the Goods Availability Act, an emergency law enacted in 1952, and directly intervened in Nexperia’s corporate governance. The move suspended the authority of executives representing the Chinese controlling shareholder and placed voting rights under the control of an independent administrator. China strongly condemned the action as a de facto nationalization attempt and responded by restricting exports of certain products manufactured at Nexperia’s facilities in China. As supply-chain disruptions intensified following Beijing’s retaliation, the Dutch government temporarily suspended the measure in November of the same year. However, the independent administrator framework established by the Dutch Enterprise Court, along with the dismissal and suspension measures imposed on Wingtech’s then-chief executive officer, remain in effect separately. Wingtech has challenged those decisions through legal action.