what we think

By Gloria Ge

When negotiating a cross-border transaction involving a Chinese investor in a non-Chinese company, parties naturally focus on valuation, governance, investor protection and exit arrangements. Outbound Direct Investment (ODI) approval—the approval that the Chinese investor must obtain in China for an outbound investment—is often treated as an internal matter for the Chinese investor to handle.

However, once a transaction reaches the payment and closing stage, a Chinese investor will generally need to provide its ODI approval or filing documents and foreign exchange registration documents before it can purchase foreign currency and remit funds offshore. If those procedures were not started on time, closing will likely be delayed. In some cases, the intended transaction structure may even prove unworkable. Identifying it early can therefore be critical to deal certainty.

ODI should be considered before signing

China's ODI regime generally involves approval or filing procedures with the National Development and Reform Commission (NDRC) and the local commerce authorities, followed by foreign exchange registration and payment procedures through the banking and foreign exchange administration systems. The applicable route, responsible authority and timetable depend on the investor, the size and nature of the investment, and whether the project involves a sensitive country, region or industry.

These procedures are relevant to a broad range of transactions. Examples include the establishment of an offshore joint venture by a Chinese enterprise, the acquisition of an offshore company or asset, and a foreign investor's investment in an offshore company established by a Chinese enterprise.

The practical review also differs according to the transaction. For a greenfield project, the authorities generally focus on the investor's eligibility, the authenticity of the source of funds and the reasonableness of the offshore structure. For an acquisition, particularly one involving ownership interests, management or operational rights, or other interests in an overseas company or asset, the review typically focuses on the reasonableness of the consideration, the target's pre- and post-transaction structures, whether the transaction involves reverse investment or round-trip investment arrangements, and whether the fund flows are supported by genuine underlying transactions.

A key point to remember is that ODI approval is subject to strict conditions, and the competent authorities retain a degree of discretion in deciding whether to approve an application. Approval should therefore by no means be regarded as automatic—even where the proposed transaction appears to satisfy the formal requirements.

Parties should therefore not wait until payment is due to consider ODI. At an early stage, they should determine whether ODI procedures apply, whether the Chinese investor is able to satisfy the relevant requirements, and how the regulatory timetable should be reflected in the transaction documents and closing arrangements. This can help avoid committing to a structure or timetable that cannot be implemented in practice.

Funding arrangements require early planning

Before the core ODI approval or filing procedures have been completed, a Chinese investor may, subject to applicable requirements, apply for foreign exchange registration for preliminary expenses. This could allow it to pay necessary preparatory costs such as due diligence expenses and legal or financial advisory fees.

However, these preliminary expenses are subject to limits. They generally may not exceed 15% of the proposed total Chinese investment, and remaining funds may need to be repatriated if the project is not approved or implemented within the prescribed period. The transaction timetable, ODI process and use of preliminary funds should therefore be planned together.

Additional issues may arise where an offshore company with Chinese investment and/or Chinese ultimate beneficial owners makes a reverse investment into Mainland China. When completing FDI registration and approving capital-account receipts and payments, Chinese banks will require documents evidencing the completion of ODI procedures. Any omission or defect in the original ODI procedures may affect the inward remittance of capital, profit distributions and other cross-border fund flows, and consequently the implementation of the overall investment and financing structure.

Reviewing the complete funding path at the structuring stage can therefore be just as important as reviewing the transaction documents themselves.

Order No. 837 extends the compliance focus

State Council Order No. 837, which came into effect on 1 July 2026, requires whole-process supervision on a classified and tiered basis. Regulatory attention may therefore extend to information reporting, cross-border fund registration and post-investment management throughout the investment lifecycle.

The new rules also strengthen the interaction between outbound investment regulation and national security review, export controls and data security. In particular, Article 13 addresses the transfer of goods, technologies, services and related data through arrangements including the cross-border dispatch of technical personnel, technical guidance and training. Article 15 establishes an outbound investment national security review regime for outbound investments, and transfers or disposals of related assets and interests, that affect or may affect national security.

For transactions involving critical technologies, important data or sensitive industries, completing the ordinary ODI procedures may therefore be only part of the analysis. The specific transaction arrangements may also require coordinated consideration of national security review, export controls, merger control and cross-border data compliance.

The practical implication is that ODI cannot be viewed solely as a remittance formality. Depending on the transaction, it may form part of a broader regulatory assessment extending from initial structuring through post-investment operations.

Three questions to address at the outset

For a cross-border transaction involving a Chinese investor, three questions should be addressed before the structure and timetable are finalised:

1. What ODI approval or filing route applies, and how long is it expected to take?
2. Can the proposed cross-border funding path be implemented in practice, including at the payment and closing stages?
3. Does the transaction involve national security, technology, data or export-control issues under the new regime?

Identifying and coordinating these requirements at the outset can help the parties select a workable structure, align the transaction documents, funding arrangements and regulatory timetable, and reduce the risk of discovering at closing that the funds cannot move.

For Chinese investors and their overseas counterparties, early ODI analysis is therefore not simply a compliance exercise. It is an essential part of transaction planning—and an important safeguard for deal certainty.

As well as advising Chinese companies to obtain ODI approval as part of their outbound investments, R&P advises international companies that enter into offshore cooperation structures with Chinese investors. If you would like to learn more, please contact author Gloria Ge ([email protected]), Maarten Roos ([email protected]), or your current contact person at R&P.