2026 ODI Rules Get Tougher: Key Red Lines to Avoid (I)

As we move through half of 2026, global expansion remains one of the key strategic directions for domestic enterprises seeking to develop markets and integrate global resources. When a company establishes an overseas subsidiary, acquires offshore equity, or engages in cross-border industrial investments, the cross-border remittance of funds must be preceded by completion of ODI (Overseas Direct Investment) filing.

The current overseas investment regulatory framework has continued to tighten. The National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), and the State Administration of Foreign Exchange (SAFE) have established a fully integrated closed-loop regulatory model featuring inter-departmental joint review, look-through verification, and dynamic reporting. The regulatory focus has shifted from traditional formal review to substantive look-through scrutiny, significantly raising the compliance bar. Instances of ODI filing rejections and application processing delays have become increasingly common. Compliance capability has now become the core prerequisite for enterprises to expand globally and transfer cross-border funds.

Core Regulatory Changes in 2026

The fundamental logic underlying ODI filing regulation has undergone a fundamental shift. The regulatory framework now operates on three core principles: differentiated approval based on industry classification; look-through verification; and full-lifecycle management and control. Data among the three major regulatory authorities is now fully interconnected, allowing end-to-end traceability of investment structures, fund flows, and overseas project execution progress. The review criteria have shifted from “completeness of documentation” to substantive compliance, genuine business operations, and controllable risk. Overall approval standards have tightened significantly.

1.      Industry-Graded Review Mechanism

Pursuant to Articles 13 and 14 of the Measures for the Administration of Overseas Investment of Enterprises, the state applies a graded and categorized review system for overseas investment projects based on industrial policy and national security requirements. Projects are divided into three broad categories—Encouraged, Restricted/High‑Attention, and Prohibited—with clearly differentiated control measures:

1)        Encouraged Category

This category encompasses high-technology industries such as artificial intelligence and biomedicine; green energy industries including photovoltaic and energy storage; advanced manufacturing; and overseas investment projects that are strongly aligned with the Belt and Road Initiative.

Such projects are eligible for policy benefits including streamlined filing procedures, a green channel approval process, shortened processing times, and eligibility to apply for special government funding for overseas investment.

2)        Restricted/High-Attention Category

This category includes real estate, hotels, cinemas, entertainment industries, sports clubs; AI infrastructure, quantum computing and 6G, biometric identification, strategic mineral resource development, healthcare, fintech, and other sensitive sectors.

In accordance with relevant regulations issued by MOFCOM and the NDRC, the review period for this category is significantly extended, and enterprises are required to submit additional national security risk assessment reports.

In practice, the review standards applied to this category are equivalent to those of the approval regime, and approval rates tend to be low.

3)        Prohibited Category

In accordance with current laws and regulations, ODI filing is not permitted for any investment in research, development, production, repair or maintenance of weapons and military equipment; cross-border water resource development and utilization; news media; or industries prohibited under PRC law such as gambling and narcotics. Enterprises may not engage in such overseas investments.

2.       Full-Chain Look-Through Verification

Regulatory authorities verify investment authenticity across three dimensions—equity, funds, and project—to eliminate the use of shell companies for investment purposes and illicit cross-border capital outflows:

1)        Ultimate Beneficiary Look-Through:

Enterprises must fully disclose their entire multi-tiered equity structure, tracing ownership upwards tier by tier until the ultimate natural-person beneficial owner is identified. The general standard is to look through no more than three layers. Any equity nominee arrangements must be unwound prior to filing; applications that fail to unwind existing nominee structures will not be accepted. This requirement aligns with the principle of verifying the authenticity of the overseas investment entity.

2)        Source of Funds Look-Through:

In strict compliance with the Notice on Issuing the Provisions on the Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institutions, only the applicant’s own legitimate funds—operating profits and compliant financing from regulated financial institutions—are recognized as permissible sources of overseas investment funds. Funds sourced from personal accounts, short-term bridge loans, or funds of unclear origin are strictly prohibited. The chain of capital must be clear and traceable.

3)        Investment Substance Look-Through:

The review process focuses on verifying the commercial logic and operational plan of the underlying project. The use of shell structures masquerading as overseas investment is subject to strict enforcement. Filings for pure holding SPVs (special purpose vehicles) established solely for equity-holding purposes with no genuine business operations will be rejected outright.

3.       Escalated Substantive Operating Requirements

In 2026, regulatory scrutiny has further intensified with respect to two high-risk categories of non-compliant entities that are particularly prevalent in cross-border investment — “newly established/rapid investment” enterprises and “small parent/large subsidiary” enterprises. These have also become leading causes of ODI filing rejections:

“Newly Established/Rapid Investment” Enterprises:

Where the domestic investing entity has been established for less than one year, lacks stable revenue, and has no consistent operating cash flow, the review will be stringent, and the rate of rejection is extremely high.

“Small Parent/Large Subsidiary” Enterprises:

Where the domestic parent company’s total assets, annual revenue, and net profit are insufficient to support the scale of the proposed overseas investment, the investing entity is treated as a risk entity.

When filing, enterprises must submit materials such as proof of business premises, records of employee social insurance contributions, and operating cash flow statements for the past one to two years to demonstrate that the investing entity’s own operational capacity matches the scale of the proposed overseas investment. Applications filed by shell companies, or where the investing entity’s capability is clearly insufficient to support the investment, will be rejected outright.

In the next article, we will cover: the basic legal definition of ODI; the statutory process and legally mandated steps; the six specific circumstances that require ODI filing (including new establishment, cross‑border M&A, overseas listing structures, and round‑trip investment); important clarifications on what does not require filing; and the legal, tax and operational risks of failing to complete ODI filing.

If you have any questions, feel free to contact us to discuss further.