(Yicai) June 2 -- China's cabinet has issued the government’s first high-level and comprehensive regulation on outbound investment, aiming to support market-based investment while strengthening security review, compliance, and countermeasure mechanisms.

The regulation was approved at an executive meeting of the State Council in April and signed by Premier Li Qiang on May 5 before being formally issued by the State Council yesterday. It will take effect on July 1.

Under the regulation, outbound investment means Chinese entities using assets, equity, financing, guarantees, and similar means to directly or indirectly acquire ownership, control, management rights, or other interests in enterprises, assets, or similar holdings in other countries or regions.

The regulation defines investors as enterprises, organizations, and resident individuals in China, and states that they have the legal right to make outbound investment decisions autonomously, bearing their own risks and taking responsibility for their own profits and losses.

Article 15 states that the State Council’s investment and commerce authorities, working with other departments, must conduct security reviews of outbound investments and of transfers or disposals of related assets and interests that affect, or may affect, national security.

Entities that refuse to cooperate with an outbound investment security review, submit false materials, conceal information, or ignore a security review decision will be ordered to correct the violation, have their illegal gains confiscated, and face penalties for both the enterprise and the responsible individuals.

For investments that threaten national security, the investor will be required to take the necessary steps to remove the security risk and will be prohibited from engaging in outbound investment for one to three years. If the investment has already been made, the entity may be ordered to stop the activity and dispose of the related shares and assets within a specified timeframe.

The rules also provide that if any country, region, or international organization breaks international law or the basic principles of international relations and imposes discriminatory bans, restrictions, or similar measures on the investments and operations of Chinese enterprises, then relevant State Council departments may include them in a countermeasure list and take corresponding actions.

The new regulation elevates China’s long-standing, effective measures into a legal framework and better connects the country’s outbound investment regime with international high-standard economic and trade rules, according to a spokesperson quoted on the website of the National Development and Reform Commission, one of the three drafting authorities.

Its implementation will better protect investors and their lawful rights and interests, safeguard national sovereignty, security, and development interests, and promote high-quality outbound investment within the framework of the rule of law, the person said.

The regulation gives Chinese companies and individuals a clearer code of conduct and stronger institutional backing, while filling a gap in the national-level system for managing and supporting outbound investment, Zhan Yubo, deputy director of the Shanghai Academy of Social Sciences' Institute of Economics, told Yicai.

Editors: Tang Shihua, Futura Costaglione