China Sharpens Its New Weapon in Trade Wars With Overseas Investment Rules

China implements the 34-article Regulation on Overseas Investment, also known as the 2026 ODI regulation, taking effect on Wednesday.

Originally announced on June 1, the framework grants the government power to take "necessary and defensive measures" to safeguard the interests of Chinese investors abroad in response to foreign trade-related barriers, reported by Livemint. The government will probe trade-related investment barriers imposed by foreign countries and coordinate retaliatory responses.

Chinese officials labelled the new law a "milestone in the history of China's outbound investment development".

The rules require Chinese investors to cooperate with authorities during overseas investigations. The South China Morning Post originally detailed this mandate.

Expanding Security Controls

State Council provisions state the measures aim to "enhance the quality and level of outward investment" and adhere to the "overall national security concept", while aiming to "balance domestic and international considerations". However, some investors worry they will restrict the ability of China's bustling and sprawling tech ecosystem to access global markets.

Beijing currently targets strategic fields including artificial intelligence, computer chips and green technology and has vowed to promote their domestic development.

The new framework also authorises the government to review investments or transfers that could impact national security. Existing curbs on cross-border transfers are extended beyond goods and data to include the export of services. This restriction governs actions such as sending technical experts abroad or carrying out training overseas.

Beijing continues to scrutinise cross-border transactions tightly. In April, China's top economic planning body blocked 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.

The US-China Economic and Security Review Commission stated 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".

Targeting Foreign Entities

China's Commerce Ministry placed 40 Japanese entities, including multiple divisions of Mitsubishi Corporation, on a control list, which prohibits Chinese and foreign exporters from selling to them dual-use items made in China. Dual-use items can be used for both civilian and military purposes.

An additional 20 Japanese entities were added to a dual-use watch list, the Associated Press reported. These include Mitsui E&S, which makes engines and other equipment for ships, alongside divisions of Fujitsu and Komatsu corporations. Exporters to these Japanese firms must apply for special licences, submit risk assessment reports and provide written pledges that the dual-use items will not be used for military purposes.

Last week, China imposed export controls on 10 US companies involved in defence and rare earths mining in response to Washington's blacklist and banned public procurement from dozens more firms.

The Commerce Ministry stated the move was "in response to the US government's egregious act of adding to its so-called 'Chinese military enterprise list'" and to "safeguard national security".