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Sherry Wang

As China is set to flesh out rules that would put individual investors on the same regulatory footing as companies when it comes to outbound investment, covering everything from purchases of overseas property to acquisitions of foreign companies, legal experts said the move will close grey areas long used by wealthy individuals to channel assets abroad.
The National Development and Reform Commission (NDRC) on Friday released a draft revision of its measures governing outbound investment and invited the public to comment through September 20. The draft clarifies that the definition of investors extends beyond corporate entities to include domestic individuals and other organisations.
Under the draft rules, “the main channels for individual portfolio investments remain secure, but grey-market workarounds will face a shrinking space to operate”, said Li Fan, a Hefei-based lawyer and partner at the Lantai Partners law firm.
While companies making overseas investments have long been subject to requirements such as regulatory approval and filing, the lack of similar, specific rules for individual investors has left more room for them to move money offshore and invest through grey-area structures such as offshore shell companies.
Li added that direct outbound investments by individuals, such as establishing companies or acquiring enterprises overseas, would no longer be conducted in a regulatory vacuum.


The revision comes as overseas property purchases, direct investments in overseas businesses, and offshore holding platforms have remained popular asset-allocation choices for high-net-worth individuals in China. Over the past year, China has also stepped up its crackdown on illegal cross-border financial activity and tax evasion through the channelling of assets abroad.
To circumvent regulatory oversight, many individuals have used so-called offshore nominee arrangements and multilayered structures, while existing rules mainly cover corporate investors and lack a clear basis for “looking through” such structures to the individual investor, said Cheng Xiaxia, head of the Chaoyang district branch of Beijing Guan Ling Law Firm.
Under the new rules, individuals would remain subject to domestic compliance obligations even when investments are routed through offshore shell companies or nominee arrangements, Cheng said.
The proposed rules would, however, leave established channels for individual overseas financial investment largely unchanged. Investments made through channels such as the Qualified Domestic Institutional Investor scheme and the mainland Chinese-Hong Kong Stock Connect mechanism would remain exempt from the draft’s approval, filing and reporting requirements, unless investors acquire control of a company or obtain equity or voting rights in increments of 10 per cent.
Direct investments, including establishing companies overseas, acquiring stakes in foreign entities or investing in overseas real estate, would instead be subject to the relevant approval, filing or reporting requirements, Cheng said. He noted that details such as filing procedures for individual investors were still awaiting further implementation rules.




For projects exceeding US$100 million, or those involving diplomatic relations, investors would need to file preliminary work reports 10 business days before starting major groundwork, according to the draft. Furthermore, offshore reinvestment via controlled subsidiaries would face mandatory reporting 20 business days before execution, with previous financial thresholds removed, it added.
At the same time, the draft seeks to better protect Chinese investors overseas. If an investor faces discriminatory measures or unreasonable deprivation or restrictions by a foreign organisation or individual, the NDRC may, at the investor’s request, take measures under State Council regulations, including restricting or prohibiting the relevant foreign parties from investing or conducting certain transactions in China.
The provision did not target any particular case, Li said, but its wording reflected growing concerns over forced divestment, restrictions on technology transfers and national-security reviews involving Chinese companies overseas, as seen in the case of Dutch chipmaker Nexperia and its parent company, Wingtech Technology.
It could be particularly relevant to companies in semiconductors, artificial intelligence, biotechnology and other sensitive technologies, as well as data-heavy platforms and investors in energy, telecommunications and infrastructure, he said.
On Tuesday, a draft anti-cross-border corruption law was submitted to the National People’s Congress, the country’s top legislature, for its first reading, as China steps up efforts to curb cross-border corruption and strengthen corporate compliance.


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Newly drafted rules would expand oversight of direct offshore investments, with more reporting requirements but limited changes for market-linked schemes


Newly drafted rules would expand oversight of direct offshore investments, with more reporting requirements but limited changes for market-linked schemes.


China moves to close regulatory loopholes in overseas investment by wealthy individuals

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Newly drafted rules would expand oversight of direct offshore investments, with more reporting requirements but limited changes for market-linked schemes

Newly drafted rules would expand oversight of direct offshore investments, with more reporting requirements but limited changes for market-linked schemes