China’s economy continues to adapt in an attempt to curb worsening economic conditions. Many domestic enterprises are expanding internationally and outbound investment on the rise. Given that China’s foreign exchange regulations are not fully liberalized, domestic capital has been actively exploring and innovating legal and compliant ways to conduct cross-border investments to achieve diversified global asset allocation goals.
This article provides a high level commentary of the primary methods for Chinese domestic capital to engage in cross-border investment.
Background of Cross-Border Investment of Capital
According to 2023 statistics from the Ministry of Commerce and the State Administration of Foreign Exchange (SAFE), China’s total outbound direct investment across all industries totalled RMB 1.04185 trillion, an increase of 5.7% compared to the previous year (or USD 147.85 billion). Among these, domestic investors made non-financial direct investments in 7,913 overseas enterprises across 155 countries and regions, with a total investment of RMB 916.99 billion, an increase of 16.7% (or USD 130.13 billion).
China’s outbound investment continues increase, and this capital plays an important role in global economic activities. But what drives the growth of outbound investment by domestic capital?
Internal Drivers
- Diversified Global Asset Allocation Needs: Capital naturally seeks profit, and where there are business opportunities, there is potential for returns. As China’s domestic economy experiences headwinds and China continues to open up to the world, international markets have become an essential field for domestic capital to optimize asset allocation.
- Intense Domestic Market Competition: Over-competition among domestic enterprises has led to poor business conditions for some, while foreign investments in China have further intensified market competition. As a result, many Chinese businesses leverage their competitive advantages to expand into international markets and secure market share.
Policy Drivers
Several key policies have encouraged outbound investment:
- 2014: The Ministry of Commerce revised the Administrative Measures for Overseas Investment, adopting a “record-filing as the main method, approval as a supplement” system, significantly streamlining the process and introducing a negative list model.
- 2018: The National Development and Reform Commission (NDRC) issued the Administrative Measures for Enterprise Overseas Investment, simplifying approval and record-filing procedures while improving overall regulatory frameworks.
- 2024: The Special Administrative Measures for Cross-Border Trade in Services (Negative List) (2024 Edition) was approved, imposing restrictions on sectors affecting national security and public interests.
Additionally, China’s capital controls—such as real-name registration, transaction limits (USD 50,000 per person per year), and restrictions on the use of foreign exchange—continue to shape the development of outbound investment.
Common Methods of Cross-Border Investment
Outbound Direct Investment (ODI)
Definition: As per the NDRC, ODI refers to investments made by Chinese enterprises in foreign entities through asset contributions, equity acquisition, financing, or guarantees, obtaining ownership, control, and management rights. The Ministry of Commerce defines ODI similarly but emphasizes investments in non-financial enterprises.
Eligible Investors: ODI is primarily applicable to Chinese-registered companies, including state-owned enterprises, joint-stock companies, joint ventures, and foreign-invested enterprises. Individual investors from mainland China are not directly eligible for ODI. However, they may invest abroad through Hong Kong, Macau, Taiwan, or overseas entities under their control.
Investment Scope: ODI applies to direct investments in overseas enterprises through equity purchases, mergers, acquisitions, or joint ventures.
Common ODI Application Scenarios:
- Establishing overseas subsidiaries
- Structuring for overseas IPOs (e.g., Red-Chip/VIE models)
- Repatriating overseas profits legally
- Expanding cross-border e-commerce businesses
- Offshore investments
Approval & Filing Process:
- Approval/filing with the NDRC
- Approval/filing with the Ministry of Commerce
- Foreign exchange registration with a designated bank
- Execution of ODI investment
Financial Requirements:
- The applicant company must be at least one year old.
- Financial reports must show no losses in the most recent fiscal year.
- Net return on assets should exceed 5%, and the debt-to-asset ratio should be below 70%.
Qualified Domestic Institutional Investor (QDII)
Definition: QDII refers to domestic financial institutions (banks, securities firms, fund managers, insurers, trust companies) authorized to raise funds in China for overseas securities investments.
Eligibility: Institutions must demonstrate financial stability, operational experience, and a track record in asset management.
Investment Scope: QDII investors may allocate capital into foreign stocks, bonds, mutual funds, and derivatives but are restricted from investing in hedge funds or real estate.
QDII Quotas:
- Institutions must apply for quotas from the State Administration of Foreign Exchange (SAFE).
- The SAFE manages quota approvals and reviews under a balance-control system.
Operational Process:
- Financial institutions apply for QDII qualifications.
- Upon approval, they raise funds and obtain foreign exchange quotas.
- Investments are made abroad under SAFE supervision.
By the end of May 2024, the cumulative approved QDII quotas were:
- Banks: USD 27.58 billion
- Securities firms: USD 92.17 billion
- Insurers: USD 39.02 billion
- Trust firms: USD 9.02 billion
- Total: USD 167.79 billion
Transfer Channels – Compliance and Documentation
Both individuals and corporations must ensure compliance with Chinese regulations and provide necessary documentation, such as proof of income, tax records, and relevant contracts. Failure to comply with these regulations can result in legal consequences and financial penalties.
International Bank Transfers
International bank transfers are one of the safest and most reliable methods for transferring funds out of China. Major banks like HSBC, ICBC, and Bank of China offer services to facilitate these transfers. To use this method, you need to provide documentation proving the legality of the funds and that all due taxes have been paid. This includes:
- Employment contracts
- Annual income tax statements
- Bank account details
UnionPay Cards
UnionPay cards can be used to withdraw cash from ATMs outside China or make purchases at international merchants. This method is convenient for smaller sums but comes with daily and annual limits. Transaction fees typically hover around 0.5% for withdrawals.
Carrying Cash Internationally
Individuals are allowed to carry up to USD 5,000 or its equivalent in foreign currency per trip. If traveling again within 15 days, the limit is reduced to USD 1,000. Any amount over these limits must be declared at customs to avoid legal issues.
Alternative Legal Avenues
For smaller sums, there are several convenient and legal alternatives:
- ATM Withdrawals Abroad: Using a Chinese UnionPay bank card to withdraw cash from ATMs outside China.
- Merchant Transactions: UnionPay cards are widely accepted in stores and restaurants worldwide, offering minimal transaction fees for overseas purchases.
Larger Financial Transactions
For larger financial amounts, such as proceeds from property sales or dividends from company shares, the process mirrors that of regular income transfers. It is crucial to maintain a comprehensive record of the transaction, including property deeds, sale agreements, and tax certificates.
Using International Banks
For those using international banks in both China and abroad, the process can be expedited, sometimes allowing for instant transfers. This method is particularly useful for expatriates and businesses with international operations.
Peer-to-Peer (P2P) Methods
While international bank transfers are the safest option, there are alternative P2P methods for moving money in and out of China. These methods include using services like Alipay and PayPal, which are legal but come with their own set of regulations and limits.
Transfers over USD50,000
Transferring funds out of China, especially amounts exceeding USD 50,000, requires careful adherence to legal and regulatory frameworks. Here are the top legal channels to facilitate such transfers in 2025.
International Bank Transfers
International bank transfers remain one of the most reliable methods for transferring large sums of money out of China. Major banks such as ICBC, Bank of China, and China Construction Bank offer these services. The process involves several steps:
- Visit Your Bank: Choose a bank that offers international wire transfer services.
- Provide Required Documents: Submit your passport, proof of income, and tax records.
- Exchange RMB to Foreign Currency: The bank will convert the amount, considering exchange rate fluctuations.
- Transfer to International Account: The bank will send the funds to the recipient’s overseas account
SAFE Approval
For amounts exceeding the annual limit of USD 50,000, approval from the State Administration of Foreign Exchange (SAFE) is required. This involves:
- Documented Income Transfers: Providing proof of income, tax documents, and other relevant paperwork.
- Application Process: Submitting an application to SAFE for approval, which can take several weeks
Using International Banks
If you have accounts with international banks like HSBC or Citibank, the process can be more streamlined. These banks often have branches in China and can facilitate transfers more efficiently. The steps include:
- Account Verification: Ensuring both your Chinese and international accounts are verified.
- Document Submission: Providing necessary documents such as proof of income and tax records.
- Transfer Execution: The bank will handle the transfer, ensuring compliance with Chinese regulations
Online Payment Platforms
Platforms like Alipay and WeChat Pay can be used for smaller transfers but are not suitable for amounts over USD 50,000. However, they can be part of a broader strategy to move funds incrementally
Foreign Exchange Services
Specialized foreign exchange services can assist in transferring large sums of money. These services often provide better exchange rates and lower fees compared to traditional banks. The process involves:
- Consultation: Discussing your needs with a foreign exchange specialist.
- Documentation: Providing necessary documents to prove the legality of the funds.
- Transfer Execution: The service will handle the transfer, ensuring compliance with all regulations
Legal and Tax Compliance
Ensuring compliance with Chinese tax laws is crucial. This involves:
- Proof of Income Legality: Providing solid proof of income legality, such as employment contracts and annual income tax statements.
- Tax Payments: Ensuring all due taxes have been paid before initiating the transfer
Property Sales and Investments
For transferring proceeds from property sales or investments, additional documentation is required. This includes:
- Property Deeds: Providing proof of property ownership and sale agreements.
Investment Records: Submitting records of investments
Conclusion
China’s outbound investment landscape always evolve, driven by market forces and policy reforms. ODI and QDII remain the two primary channels for domestic capital to invest internationally, each with its own regulatory framework and operational mechanisms. Understanding these pathways is crucial for investors seeking global asset diversification while ensuring compliance with China’s foreign exchange regulations.