Amid the backdrop of slowing economic growth and increasing pressure from capital outflows in China, authorities have strengthened restrictions on foreign exchange outflows by private enterprises, leading to many businesses facing difficulties with their plans to establish overseas factories or reinvest abroad. Several entrepreneurs have revealed that even with ample foreign currency deposits, banks have refused to process outbound remittances citing policies, forcing some businessmen to turn to underground money changers to transfer funds at risk overseas.
The operating costs of private enterprises in China continue to rise, and the investment environment is deteriorating. In recent years, many entrepreneurs have gradually shifted their investments to overseas markets such as Vietnam, Cambodia, India, and Europe to avoid domestic policy uncertainties.
Xu Wensheng (pseudonym), a private entrepreneur in Zhejiang operating machinery parts exports, told reporters that he had already established a factory overseas in 2018 and planned to invest over 10 million US dollars deposited in domestic banks into overseas expansion. However, the bank expressly informed him that “outbound remittance is not allowed” citing lack of approval from the State Administration of Foreign Exchange.
Xu Wensheng said, “I had transferred US dollars overseas through underground channels, but given the large amount, I dare not fully rely on underground money changers. It’s money I earned through hard work, yet it’s like being locked in the bank, completely unusable and very distressing.”
Mrs. Zhao, based in Shanghai and owning several factories in Fujian with products mainly exported to Europe, had already established factories in Vietnam and Europe by 2023 but recently encountered similar obstacles. Zhao disclosed to reporters, “I have nearly $10 million US dollars in a foreign bank account, but in early 2025, I was prohibited from remitting it to a certain overseas country. No matter how I explain, it’s futile.”
She further added that to her dismay, the funds were later directly frozen: “I now want to withdraw this money from the bank, but the bank says the funds are frozen by the foreign exchange regulator; even transferring it to other accounts domestically is blocked, which makes me infuriated and helpless.”
Such cases are not uncommon within the private enterprise circle. Businessman Li Tianyi from Zhejiang stated that over 8 million US dollars in his accounts in two foreign banks in Shanghai have been frozen for a year. “I have two funds frozen in foreign banks, and despite my applications, I cannot get them transferred abroad,” he expressed anger and anxiety.
Mr. Guo, another individual who successfully transferred funds overseas, told reporters that he converted the money into Bitcoin and then withdrew cash overseas: “I purchased Bitcoin from a friend, converted it to US dollars overseas; also helped friends in need of remitting dollars to China, but it takes longer.”
Mr. Guo criticized the authorities: “Why won’t the government allow us to take our money for overseas investments? The investment environment in China is so poor; we really can’t make money here.”
Mr. Zhang, an owner of a small and medium-sized enterprise exporting antique furniture from Beijing, also echoed the same issue. He mentioned that while orders from European and American markets remained stable, the rising labor costs and land prices in China prompted him to consider setting up a branch factory in Southeast Asia to share costs. “My millions of dollars in deposits in domestic banks are lying still and cannot be moved; my plans for overseas expansion are forced to come to a halt.”
Mr. Zhang said, “Our competitors in Southeast Asia are already expanding; if we remain stagnant, our market share will eventually be taken away.”
With tightening policies, more and more small and medium-sized enterprise owners in China are facing similar predicaments.
In response to this, an economics professor at a university in Beijing, Li Yang (pseudonym), analyzed, “Since the increased pressure of RMB depreciation in 2016, officials have started to rigorously scrutinize outbound direct investments, particularly in real estate, sports clubs, hotels, and now even curbing manufacturing expansions, reflecting the government’s high sensitivity to capital outflow.”
He also criticized that overly rigid policies might suppress the international layout of private enterprises. “If capital remains trapped domestically for a long time, and businesses lack profit channels, it will weaken the overall economic vitality.”
Since the strengthening of foreign exchange controls by the Chinese Communist Party in 2016, banks have become increasingly strict in their enforcement. To process outbound direct investments (ODI), enterprises not only need to submit approval documents from departments such as the Ministry of Commerce and the National Development and Reform Commission but also require approval from the State Administration of Foreign Exchange. Even with all procedures in place, the approval process is lengthy and complex. Many entrepreneurs are concerned that tightening policies signify tougher future challenges in moving funds abroad.
Financial researchers commented that the contradiction between “control and demand” is evident in data and market sentiment. While the authorities aim to retain funds, more and more private entrepreneurs are losing confidence in the domestic investment environment and prefer moving capital overseas. According to data from the Ministry of Commerce of the Chinese Communist Party, China’s outbound direct investment (ODI) decreased by nearly 10% in 2024, with a noticeable decline in manufacturing investment. If policies continue to diverge from business needs, the Chinese authorities might face more significant financial and industrial pressure in the future.