China’s Outbound Direct Investment (ODI) regime has evolved from strict pre-approval controls to a more structured, risk-based regulatory system. In this episode, we explain how ODI works today, the role of key regulators, and what Chinese enterprises must consider before investing abroad.

ODI operates within the broader policy context of China’s “Going Global” Strategy and the Belt and Road Initiative (BRI).

China initially introduced ODI regulations under a strict approval regime, requiring government consent before overseas investment could proceed.

In 2014, China moved toward a filing-based system:

• Most ordinary ODI projects require filing

• Only specific categories require formal approval

This reform streamlined outbound investment while preserving regulatory oversight.

The framework was further refined in 2018, introducing:

• Expanded definitions of sensitive sectors and countries

• A supervisory classification system:

1. Encouraged
2. Restricted
3. Prohibited

This created a more nuanced, policy-aligned control mechanism.

Any Chinese enterprise investing abroad must navigate three key authorities:

The NDRC procedure depends on:

• Investment amount

• Whether the investment is direct or indirect

• Whether the sector is classified as sensitive

Key thresholds include:

• Investments exceeding USD 300 million require submission of a formal project report

• Non-sensitive direct investments generally require an application

• Non-sensitive indirect investments may not require filing

• Sensitive sector projects require approval regardless of size

MOFCOM applies a similar dual-track system:

• Filing for ordinary projects

• Approval for sensitive sectors or jurisdictions

MOFCOM focuses primarily on commercial compliance and outbound investment policy alignment.

After NDRC and MOFCOM steps are completed:

• The project must be registered with a SAFE-authorised foreign exchange bank

• Required documents include the foreign exchange application form and the company’s business licence (with unified social credit number)

SAFE oversees capital outflows and foreign exchange compliance.

Chinese enterprises must assess:

• Sector classification (Encouraged / Restricted / Prohibited)

• Sensitivity of destination jurisdiction

• Investment structure (direct vs indirect)

• Capital outflow compliance

• Documentation consistency across regulators

Failure at any stage can delay or block outbound investment.

China’s ODI regime is no longer purely restrictive—it is structured and policy-driven.

The system balances:

• Encouragement of strategic overseas expansion

• Capital control safeguards

• Sector-based risk management

For Chinese enterprises and foreign partners,...

China’s Outward Direct Investment (ODI) regime channels substantial capital abroad each year. For global wealth managers, trustees, funds, and private banks, this represents significant opportunity—but also heightened regulatory scrutiny.

In this episode, we explore how ODI-related capital can be engaged lawfully and transparently, while managing cross-border risk.

Approved ODI flows, once cleared by authorities such as:

1. National Development and Reform Commission (NDRC)
2. Ministry of Commerce of the People's Republic of China (MOFCOM)
3. State Administration of Foreign Exchange (SAFE)

may be deployed internationally for:

• Infrastructure and real estate

• Private equity and venture capital

• Portfolio diversification

• Family office structuring

• Cross-border corporate expansion

Switzerland, Singapore, Luxembourg, and other financial centres are frequent destinations due to regulatory stability and deep capital markets.

Any cross-border structuring must operate within:

• Local capital controls and foreign exchange rules

• Anti-money laundering (AML) and KYC standards

• Beneficial ownership transparency requirements

• The Common Reporting Standard (CRS)

• FATCA (where applicable)

The global transparency environment—driven by the Organisation for Economic Co-operation and Development—means that attempts to structure purely for secrecy face escalating enforcement risk.

Rather than focusing on concealment, sophisticated advisory work now centres on:

Ensuring governance, control, and operational purpose align with regulatory expectations.

Coordinating ODI approvals, SAFE compliance, and foreign jurisdiction requirements.

Deploying capital into jurisdictions with legal certainty, strong fiduciary standards, and predictable enforcement.

Using reputable legal frameworks—such as well-regulated trust jurisdictions—to manage litigation and succession risk while remaining compliant with disclosure obligations.

Wealth management hubs such as:

1. Switzerland
2. Singapore
3. Luxembourg

compete not on secrecy, but on:

• Rule of law

• Judicial reliability

• Regulatory sophistication

• Professional ecosystem depth

ODI creates meaningful wealth management opportunities—but the era of opacity-driven structuring is over.

Sustainable strategies must prioritise:

• Transparency

• Regulatory alignment

• Economic substance

• Long-term defensibility

Capital mobility today is governed as much by compliance architecture as by financial strategy.

China’s Outward Direct Investment (ODI) strategy operates on two parallel tracks: large-scale state-backed projects under the Belt and Road Initiative (BRI) and substantial overseas investment by private Chinese enterprises.

While government-led projects dominate headlines, private Chinese companies invest nearly USD 200 billion per year abroad, making ODI a critical pillar of China’s global economic footprint.

Launched under the leadership of Xi Jinping, the BRI builds conceptually on historic trade networks that once connected China to the West.

These routes include:

1. The Silk Road journeys associated with Marco Polo
2. The travels of Ibn Battuta across Muslim regions
3. The maritime expeditions of Ming admiral Zheng He

Refers to overland infrastructure corridors:

1. Rail and road routes through Central Asia
2. Land connections linking China to Europe
3. Logistics hubs and industrial corridors

Refers to Indo-Pacific sea routes:

1. Southeast Asia
2. South Asia
3. The Middle East
4. Africa

This maritime network already carries more than half of global container traffic, making port infrastructure a strategic focus.

Some estimates describe the BRI as one of the largest infrastructure and investment projects in modern history, involving more than 68 countries.

Projects include:

1. Deep-water ports
2. Railways and highways
3. Airports and bridges
4. Skyscrapers and logistics zones
5. Energy infrastructure (including dams and power stations)
6. Railway tunnels and industrial parks

Beyond state-backed infrastructure, China’s ODI also includes:

1. Manufacturing expansion
2. Technology investments
3. Real estate acquisitions
4. Resource development
5. Strategic equity stakes

Private enterprise ODI plays a major role in integrating Chinese firms into global...

This episode explores how different jurisdictions interpret the CRS look-through rules for trusts that qualify as Reporting Financial Institutions (FI-trusts)—and why the divergence between Hong Kong and Switzerland matters.

At the centre of the debate is a simple but technical question:

Under the CRS Implementation Handbook issued by the Organisation for Economic Co-operation and Development:

• Equity interests in an FI-trust are held by:

– The settlor

– The beneficiary

– Any other natural person exercising ultimate effective control (which at a minimum includes the trustee)

• A discretionary beneficiary is treated as an account holder only in years when a distribution is made.

• Where a settlor, beneficiary, or controlling person is an entity, that entity must be looked through to identify its ultimate natural controlling persons.

This is where interpretation begins to diverge.

The position of the Inland Revenue Department (IRD) is that:

• The term “entity” in this context

• Does not include persons excluded from the definition of a reportable person

Under the CRS:

• Financial Institutions are non-reportable persons

• Therefore, they are not subject to look-through

In other words, in Hong Kong’s interpretation:

This preserves the structural distinction between:

• Reporting FIs

• Passive NFEs

Swiss revised guidance has taken a broader interpretation, treating:

• “Entity” as including Financial Institutions

• Requiring FI-trusts to look through entity equity holders

• Identifying and reporting the controlling persons behind those entities

This effectively removes the traditional “FI blocker” principle.

This episode looks at an often-cited but rarely analysed source: the OECD CRS FAQ on General Reporting Requirements, specifically Page 2, Question 7, dealing with the look-through requirement.

The key issue:

Does the FAQ require look-through where an equity interest in a Financial Institution is held by another Financial Institution?

The FAQ issued by the Organisation for Economic Co-operation and Development addresses when a reporting Financial Institution must apply a look-through approach.

In Page 2, Question 7, the FAQ refers to situations where an “entity” holds an account and discusses when controlling persons must be identified.

Notably:

• The FAQ uses the generic term “entity”

• It does not explicitly state that this includes Financial Institutions

• It does not override the CRS definition of non-reportable entities

Under the CRS framework:

• Financial Institutions are generally non-reportable persons

• Due diligence applies only to Reportable Accounts

• Accounts held by non-reportable entities are not subject to look-through

The FAQ does not amend these structural definitions—it provides interpretative clarification.

The debate arises from how the word “entity” in the FAQ should be read:

Interpretation A:

“Entity” includes all entities, including Financial Institutions → look-through applies universally.

Interpretation B:

“Entity” must be read consistently with the CRS structure → look-through applies only where the entity is a Reportable Person (e.g., Passive NFE), not where it is a Reporting FI.

The FAQ does not expressly state that Financial Institutions lose their non-reportable status for equity interest purposes.

If the term “entity” in the FAQ were interpreted to automatically include Financial Institutions:

• The FI “blocker” principle would weaken

• Duplicate reporting risks could arise

• The “closest FI” allocation model could be disrupted

If interpreted consistently with the CRS definitions:

• Financial Institutions remain non-reportable persons

• Look-through applies to Passive NFEs

• Reporting responsibility remains structurally allocated

The OECD CRS FAQ on General Reporting Requirements refers broadly to an “entity” but does not explicitly extend look-through to Financial Institution entities.

Whether that silence implies inclusion or exclusion remains the crux of the interpretative debate.

For trustees and compliance professionals, the critical lesson is:

This episode examines a pivotal provision in the CRS Commentary—paragraph 178 (Section VIII, C(4))—and its implications for trusts that qualify as Reporting Financial Institutions (FI-trusts).

The key issue:

When equity interests in an FI are held through a Custodial Institution, who reports?

Under the Commentary issued by the Organisation for Economic Co-operation and Development, paragraph 69 clarifies that:

This defines who holds an equity interest in an FI-trust.

Paragraph 70 then adds a critical allocation rule:

The Commentary provides a concrete example:

• Reportable Person A holds shares in Investment Fund L

• A holds those shares in custody with Custodian Y

• Fund L is an Investment Entity (an FI)

• Custodian Y is a Custodial Institution (an FI)

Under the CRS:

• Fund L treats Custodian Y as its account holder

• Because Y is a Financial Institution, it is not a Reportable Person

• Therefore, L does not report

Instead:

• Custodian Y reports the shares it holds for A

• Reporting responsibility rests with the FI closest to the Reportable Person

This illustrates the “closest FI” principle and prevents duplication.

The Commentary appears explicit:

• If equity interests are held through a Custodial Institution

• The Custodial Institution reports

• The upstream FI does not look through

Critics argue that requiring FI-trusts to look through **all entities—including non-reportable entities such as Custodial Institutions—**conflicts with:

• Paragraph 70 of the Commentary

• The non-reportable status of Financial Institutions

• The structural allocation of reporting responsibility

Supporters may argue that broader transparency objectives justify expanded look-through in certain contexts.

This debate is not theoretical. It affects:

• Whether FI-trusts must look through FI equity holders

• Whether Financial Institution status functions as a reporting “blocker”

• The risk of duplicate or redundant reporting

• Consistency between CRS text and administrative interpretation

At its core, the Commentary example reinforces a structural rule:

Understanding this allocation principle is critical for trustees, compliance officers, and cross-border advisors navigating divergent national interpretations.

This episode examines a core structural rule of the Common Reporting Standard (CRS):

Financial Institutions are non-reportable persons and must not be looked through for due diligence purposes.

We analyse the relevant CRS provisions and explore why this principle is central to the reporting framework.

Under the CRS issued by the Organisation for Economic Co-operation and Development, reporting obligations are carefully tiered.

Only Reportable Accounts are subject to due diligence.

This distinction is fundamental.

The Standard states:

It further clarifies that accounts held by non-reportable entities—including:

• Financial Institutions (e.g., custodial institutions)

• Central banks

• Government entities

• International organisations

• Regularly traded corporations

—are not subject to due-diligence procedures.

Section VI requires a determination of whether an entity account is a reportable account.

Where the account holder is a non-reportable entity, including a Financial Institution:

➡️ The entity must not be looked through.

The due diligence obligation ends at that level.

The CRS is built on an allocation model:

• Financial Institutions report

• They are generally not reported on (in their capacity as FIs)

• Look-through applies to Passive NFEs—not to Reporting FIs

This prevents:

• Duplicate reporting

• Administrative inefficiency

• Confusion over responsibility

Against this background, debate arises where guidance suggests that FI-trusts should look through entity equity holders—even where those entities qualify as Financial Institutions.

The textual question becomes:

If the CRS explicitly states that non-reportable entities must not be subject to look-through, can administrative interpretation require otherwise?

Critics argue this creates tension with:

• The no-look-through rule for non-reportable entities

• The structural allocation of reporting responsibility

• The prohibition against duplicative reporting

Supporters argue the approach enhances transparency.

This is not a narrow drafting issue—it affects:

• How FI-trusts classify equity interest holders

• Whether FI status acts as a reporting “blocker”

• The integrity of the CRS due diligence hierarchy

At stake is a foundational principle:

Understanding this architecture is essential for trustees, compliance officers, and advisors operating across jurisdictions with divergent interpretations.

This episode examines a narrow but consequential interpretative issue:

Did Switzerland extend the CRS look-through rules for FI-trusts beyond what the OECD Implementation Handbook actually provides?

The debate centers on Chapter 6.3 of the CRS Implementation Handbook, specifically paragraphs 254–256 (pp. 109–110), dealing with trusts that qualify as Reporting Financial Institutions.

The Handbook states:

It then clarifies that the CRS defines the following entities as non-reportable persons:

• Financial Institutions

• Regularly traded entities

• Central banks

• International organisations

• Government entities

This establishes the starting point:

If the equity interest is held by a Financial Institution, it is not a Reportable Person.

The Handbook further states:

It then explains that a trust must apply a look-through approach to a settlor, trustee, protector, or beneficiary that is an Entity to identify the relevant Controlling Persons—corresponding to AML/KYC beneficial ownership principles.

The controversy arises from how the term “Entity” is read in paragraph 256.

The critical observation:

Nowhere—explicitly or implicitly—does paragraph 256 state that “Entity” includes non-reportable entities such as Financial Institutions.

Paragraph 254 has already distinguished:

• Reportable Persons

• Non-reportable entities (including FIs)

The textual argument advanced by critics is therefore:

If paragraph 254 establishes that Financial Institutions are non-reportable persons, and paragraph 256 refers to “Entities” without overriding that distinction, then the look-through rule logically applies only where the entity is a Reportable Person (e.g., Passive NFE), not where it is a Reporting FI.

Swiss revised guidance interpreted paragraph 256 as requiring FI-trusts to:

• Look through entity equity holders

• Identify and report controlling persons

—even where the entity is itself a Financial Institution.

Critics argue that this effectively:

• Treats FI equity interest holders similarly to Passive NFEs

• Removes the structural “FI blocker” principle

• Expands reporting beyond the CRS text

Supporters argue the approach aligns with transparency objectives and AML alignment.

The dispute is not about transparency—it is about architectural coherence.

If Financial Institutions are non-reportable persons by design, then requiring look-through of FI equity interests may:

• Create duplicate reporting

• Disrupt the “closest FI” allocation principle

• Blur the boundary between FI and Passive NFE treatment

The question is whether the Implementation Handbook clarified the Standard—or extended it.

Paragraphs 254–256 of the CRS Implementation Handbook distinguish clearly between:

• Reportable Persons

• Non-reportable entities (including Financial Institutions)

The debate turns on whether “Entity” in paragraph 256 implicitly overrides that distinction—or must be read consistently with it.

For trustees and advisors,