China and the West Build Walls to Stem Outflow of Capital, Technology, and Companies

(Central News Agency, Taipei, June 8) China is building walls to prevent the outflow of capital, technology, and companies across its borders. Last week, China's State Council introduced new regulations requiring Chinese companies to undergo national security reviews before making overseas investments. Earlier, in April, China introduced rules allowing regulators to intervene when foreign companies attempt to move their supply chains out of China.

The New York Times reports that these measures outline a new blueprint for China to build an economic fortress around its technology and supply chains amid increasingly tense relations with the West. The regulations signal that the principles of open markets and free trade, which have dominated the global economy and helped fuel China's rise over the past few decades, are giving way to a more fragmented era.

The report notes that from Washington to Brussels, major global economies are choosing trade barriers over deeper economic integration, and Beijing has already previewed what this new era might look like.

Beijing blocked Meta's $2 billion acquisition of Manus, an AI company founded by Chinese engineers; asked Chinese oil refineries under U.S. sanctions not to comply with U.S. sanctions; and ordered a state-backed security inspection equipment company not to cooperate with EU investigators. Each action by China pushes Beijing and the West further toward confrontation.

Chinese policymakers have been continuously expanding their toolkit of export controls, countermeasures, and trade penalties in response to tariffs and other restrictions imposed by foreign governments. The new regulations also grant regulators new powers to conduct national security reviews of Chinese companies seeking opportunities abroad, classifying related investments into three categories: encouraged, restricted, and prohibited.

A decade ago, China also imposed strict limits on outbound investment, cracking down on corporate giants acquiring flashy assets like New York's Waldorf Astoria Hotel. However, those interventions were aimed at mitigating domestic financial risks, primarily involving bank regulators reviewing corporate balance sheets. The new framework is fundamentally different, with its focus on national security.

Chinese officials have called the new regulations a "milestone" for outbound investment. But for many investors, the vague definition of "national security" has already created significant uncertainty.

China is not the first country to review outbound investment. In 2024, the Biden administration restricted the flow of U.S. capital into China's semiconductor, quantum computing, and artificial intelligence sectors. The EU has also urged its member states to review investments in these sensitive areas. However, compared to the U.S. and Europe, Beijing's definition of "national security" is much broader, resulting in a wider scope of coverage for the relevant regulations.

The report states that for lawyers and trade consultants, the flurry of restrictive measures by multiple governments marks the end of an era. (Editor: Zhu Jianling / Qiu Guoqiang) 1150608