China used foreign tech to rise, but now it’s slamming the door
Old model: Market access technology
China’s economic transformation after the reform period in the late 1970s was largely dependent on foreign investment. Throughout the 1980s and 1990s, multinational corporations were lured by the promise of access to the world’s largest emerging market. But access often came with conditions. Foreign manufacturers entering China were often encouraged, and in some industries actually required, to form joint ventures with local partners. These arrangements have helped China attract investment and employment, but they also serve a broader strategic purpose. Chinese companies have been exposed to manufacturing techniques, supply chain management, engineering expertise and advanced technologies that are often not available domestically.
In industries ranging from automobiles and electronics to telecommunications equipment, foreign firms have trained Chinese workers, shared production processes and helped establish local industrial ecosystems. The transfer was not always official. Much of this happened through day-to-day collaboration, staff exchanges and gradual accumulation of technical know-how.
Western governments and businesses have complained for years that China’s development model encourages technology transfers that go beyond normal business practices. These concerns later evolved into accusations of forced technology transfer, intellectual property violations, and industrial policies designed to help Chinese companies catch up with foreign rivals. Whatever the merits of these criticisms, the strategy worked. China has moved steadily from assembling foreign products to designing its own products. It has climbed the manufacturing value chain and established globally competitive firms in sectors once dominated by Western companies.
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China has reached its technology limitThe logic underlying China’s new regulations suggests that it no longer sees itself primarily as an importer of technology. Today, China views artificial intelligence, advanced chips, and green technology as strategic assets central to economic growth, industrial competitiveness, and national security. Chinese companies have become major innovators rather than mere adopters. This transformation can be seen in many sectors. Chinese electric vehicle manufacturers are competing aggressively in international markets. Chinese AI developers have produced large-language models that are becoming increasingly complex. Domestic semiconductor companies are investing heavily to reduce dependence on foreign suppliers.
As China’s technological position strengthens, concerns in Beijing have changed. The problem is no longer how to acquire foreign know-how. This is how to prevent China’s know-how from leaving the country. The Council of State’s new Regulation on Foreign Investments creates a comprehensive legal framework regulating foreign investments, technology transfers and cross-border movement of expertise. According to the regulations, overseas investments must comply with China’s “overall national security concept” and also balance domestic and international considerations.
A new era in technology protection
The importance of the new rules extends far beyond investment approvals. Within the framework, authorities will be able to examine foreign investments and transfers that may affect national security. Existing restrictions that currently apply to products and data have now been extended to services. This means technical training abroad, sending experts abroad and other forms of knowledge sharing may come under scrutiny. The regulations specifically target channels through which sensitive technologies can leave China. Chinese organizations are prohibited from exporting or transferring restricted technology through technical training, cross-border personnel arrangements or remote technical assistance, according to an analysis by business consultancy Dezan Shira & Associates cited by the South China Morning Post. Joint ventures, technology licensing agreements, and cross-border research collaborations may face export control reviews and data compliance requirements.
Christopher Beddor, deputy director of China research at Gavekal Dragonomics in Hong Kong, told the South China Morning Post that the primary target is Chinese companies and investors. “Foreign operations cannot be used as a conduit to move sensitive Chinese-origin technologies beyond Beijing’s oversight,” he said. His observation captures the essence of Beijing’s new approach. The Chinese state increasingly views overseas operations not only as commercial activities but also as potential channels for the leakage of strategically valuable information.
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Tech war context
The regulations cannot be understood without considering the broader deterioration in China’s technology relationship with the United States and parts of Europe. In recent years, Western governments have implemented export controls, sanctions, investment restrictions and blacklisting measures to limit China’s access to advanced technologies. Semiconductor restrictions imposed by the United States have become a defining feature of the broader US-China technology competition.
The State Council’s new regulation explicitly allows for what it calls “necessary and defensive measures” to protect Chinese investors and their interests abroad against foreign trade barriers. It also gives authorities the authority to investigate restrictions on foreign trade and coordinate responses.
Chinese officials have described the law as a “turning point” in the country’s overseas investment regime. The message is that Beijing is increasingly looking at investment policy through the lens of strategic competition rather than pure economic efficiency. This shift reflects a broader trend in which technology, capital and national security are deeply intertwined.
Manus, Meta and Beijing’s growing suspicion
Recent events show how sensitive Beijing has become about cross-border technology transactions. In April, Chinese authorities reportedly blocked Meta’s attempt to acquire Manus, an artificial intelligence startup founded in China but now created by a Singapore-based company. Reports in March showed that two of Manus’ co-founders were blocked from leaving China while the proposed transaction was reviewed.
The case highlighted Beijing’s growing concern that valuable technologies developed by China could ultimately fall under foreign control.
The new regulations effectively institutionalize this concern. Rather than dealing ad hoc with individual transactions, authorities now have a broader legal framework within which they can monitor and potentially restrict technology transfers linked to overseas investment. The regulations also follow disputes involving companies such as Nexperia, a Dutch semiconductor company owned by China’s Wingtech Technology, and underscore how technology-related investments are increasingly embroiled in geopolitical tensions.
Europe faces new challenges
Their influence extends far beyond China and the United States. Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis, told AFP the new restrictions could have serious consequences for Europe’s technology ambitions.
Beijing is trying to maintain its domestic AI power in competition with Washington but has said the new rules risk depriving other parts of the world of Chinese investment. “This is terrible for Europe, because if anyone believes that we can rely on China’s open weight (AI) models, that is wrong, we cannot,” he said, adding that the continent cannot rely on Chinese talent to develop its own models due to Beijing’s strict cross-border restrictions. “With the US-China technology race showing no signs of stopping,” he added, Europe may need to deepen strategic partnerships with countries like South Korea and Japan if it wants to avoid over-reliance on one of the technological superpowers.
His assessment highlights an important consequence of China’s new approach. For years, policymakers in Europe have viewed Chinese investment as a source of capital, technology partnerships and research collaboration. These assumptions may now need to be re-evaluated.
What does it mean for global business?
The practical impact of regulations for multinational companies remains unclear. Much will depend on how aggressively they are applied. James Zimmerman, president of the American Chamber of Commerce in China, told the South China Morning Post that American companies are following the law closely. “It is too early to call a broad recalibration of relations with Chinese partners,” Zimmerman said. “What is important is that the investment takes place in a transparent, predictable regulatory environment.” He added: “As with any significant regulatory development, companies will continue to monitor implementation closely and ensure they understand the compliance implications for their operations and business relationships.”
Charles Chang, a finance professor at Fudan University in Shanghai, told the South China Morning Post that China is unlikely to target foreign companies directly because Beijing still wants to attract international investment. However, even if foreign companies are not the direct focus, compliance burdens related to data transfers, technology collaboration and cross-border research projects are likely to increase.
China’s big tech comeback
China’s new overseas investment regime represents one of the clearest signs yet of how dramatically the country’s position in the global technology landscape has changed. The country, which once relied heavily on foreign expertise to fuel its industrial development, is now trying to ensure that its own technological advances do not flow abroad without state oversight. The mechanisms are different, but the strategic logic is familiar. In the past, China has used its market access to obtain information from foreign companies. Today, it uses its regulatory power to prevent rivals from accessing Chinese information.
This reversal says as much about China’s technological prowess as it does about the intensifying geopolitical rivalry shaping the global economy. Beijing, which has been trying to learn from the world for decades, now believes it has innovations worth protecting. China’s time as a student of technology is over. China’s technology watchdog era has begun.
