Is China Divesting from America?

Are China ‘s recently-released “Regulations of the State Council on Outward Investment” a manifesto calling for Chinese divesture from America? Though some of the frothier online headlines (particularly on YouTube and Facebook) scream yes and even more tried-and-true media (Bloomberg and NikkeiAsia) lean that way, I do not believe the answer is that simple.

There are two explicit targets inside the new regulations and one under the surface. As for the first two, the Chinese government is concerned about ongoing capital flight and at the same time it is increasingly worried about the export of sensitive technologies, products, and services. As for the latter, the government is setting a framework that will give it geopolitical flexibility in the ongoing rift between East and West.

Hong Kong Stock Exchange Building in Exchange Square (photo by Cheung Yin on Unsplash.com)

Capital Flight. Capital flight is a real issue. The numbers from 2025 alone reportedly approached one trillion in assets leaving China. This resource drain can be dangerous for an economy if unchecked. Individual Chinese are legally prohibited from moving more than USD $50,000 offshore each year. And yet, bypassing this limit has been relatively straightforward for the wealthy and tech-savvy for many years.

Chinese with means and ability use brokerages outside of China, including Futu, Tiger Brokers, and Longbridge, to access the NYSE and NASDAQ (and elsewhere abroad). What has captured the recent headlines is that these firms were hit with huge penalties at the end of May for running unauthorized, cross-border securities businesses in China, and their China business models upended. Under the new rules to take effect July 1, 2026, existing investors will be able to sell holdings and withdraw funds on these platforms for the next two years, but will no longer be able to open new trading positions nor buy new securities or transfer money in.

This has already begun to complicate matters as some Chinese banks and the brokerages themselves are questioning and limiting new mainland accounts that could have offshore implications. The new rules will interfere with existing investments of millions of retail investors and will significantly impact outbound investment. Yet, while NikkeiAsia is not wrong in writing that “the tightening of the country’s already prohibitive capital controls has rattled the U.S.-listed shares of brokers and sown anxiety among Chinese users of the platforms,” this is not a blanket call to divest from America. It is a matter of control. The government wants it.

Export Restrictions. The new regulations also take aim at the Chinese government’s more recent concern with controlling and restricting the export of cutting-edge technologies, products, and services. There are provisions that require pre-approval for certain assets to move offshore, legal and financial accountability for companies, and potential penalties for those living and working in China who violate the rules. This is part of the tit-for-tat between America and China.

Reading Between the Lines. As with anything official Chinese, the regulatory language is dense, relies on Communist Party-approved code words and phrases, and takes pains to justify itself. In essence, it is very government: defensive and open to interpretation. Protection of national security, national interests, and national image are top of mind throughout the regulations.

Article 24 gives the government authority to “take corresponding measures to protect the safety and legitimate rights and interests of investors and their outbound investments, and to protect the State’s overseas interests from threat and infringement” when it perceives that a foreign country or organization is violating Chinese sovereignty or the rules of the global road (translated by Manoj Kewalramani/Tracking People’s Daily).

In response to reporters’ questions, Chinese Ministry of Justice and other officials noted that the regulations are designed to respond to “an urgent need” to “effectively protect the lawful rights and interests of investors and their outbound investments, safeguard national sovereignty, security, and development interests, and advance high-quality outbound investment development on the track of the rule of law.”

Overall, the new regulations give the government more levers to pull in the future if they have financial concerns or feel they are being discriminated against. The new regulations set a framework and provide legal justifications for future actions. They do not, however, set in stone how they will be interpreted and enforced, particularly since domestic and international politics will always play a role in each.

Here’s the rub: The Chinese government’s desire to both better control how Chinese money is invested and deployed and restrict export of that which it deems sensitive will ever run up against those who want to find workarounds and have the wherewithal and ability to do so. Like the flowing water of the Dao, individuals and companies in the end will generally find their way. The business and financial worlds are nothing if not creative.