In March 2018, China introduced significant reforms to its Outbound Direct Investment (ODI) regime. These changes—implemented through Order No. 11—expanded regulatory oversight, tightened supervision of indirect investments, and clarified the treatment of sensitive sectors.
In this episode, we break down what changed and why it matters.
Prior to 2018, ODI rules primarily focused on direct outbound investments by Chinese entities.
The reform broadened the scope to include:
• Investments made indirectly
• Through controlled offshore entities
• Owned by Chinese companies or natural persons
This significantly expanded regulatory reach beyond mainland-incorporated investors.
Oversight is administered primarily by the
National Development and Reform Commission (NDRC).
Under Order No. 11:
• Chinese investors must submit a project report to the NDRC
• Before closing any outbound investment of USD 300 million or more
• Including investments conducted via controlled offshore subsidiaries
This requirement applies prior to transaction completion, strengthening pre-closing supervision.
For regulatory purposes, “control” is defined broadly and includes:
• Direct or indirect ownership of 50% or more of voting rights, or
• The ability to direct operations, financial policy, HR, or technical affairs
This ensures that offshore SPVs and holding companies cannot be used to bypass ODI supervision.
A notable clarification:
• Regulatory approval is no longer a condition precedent to the legal validity of the investment agreement.
• However, it remains an enforceable regulatory requirement and is typically included as a closing condition in transaction documents.
This aligns regulatory compliance with commercial deal mechanics.
Following rapid capital outflows and speculative investments, authorities introduced stricter scrutiny of certain industries.
Sectors classified as restricted or undesirable include:
• Hotels
• Real estate
• Film and entertainment
• Sports clubs
The gambling industry is classified as prohibited.
These classifications form part of China’s broader capital management and macroeconomic stability strategy.
The 2018 ODI reforms:
• Expanded oversight to offshore-controlled entities
• Tightened pre-closing reporting for large transactions
• Clarified regulatory vs contractual validity
• Strengthened sector-based supervision
The reforms reflect China’s shift from simple encouragement of outbound expansion to targeted, risk-managed global investment governance.
