International Legal Perspective | Analysis of Practical Cases and Compliance Guidelines for ODI Filing by Enterprises After Hainan’s Border Closure

As the core entity responsible for ODI filing, the investment entity’s compliance status directly determines the success or failure of the filing application. From a practical standpoint, issues such as “rapid establishment and quick exit” without actual operations, “large parent company with small subsidiary” leading to funding imbalances, shell-company operations, and unverifiable sources of funds are the compliance red lines that enterprises most easily cross. Such issues not only result in rejection of the filing but also typically entail lengthy subsequent rectification periods, potentially adding extra time and financial costs for the enterprise.

Case 1: “Quick setup, quick launch” with no substantive operations—registration directly blocked.

In March 2025, a certain enterprise, having completed its registration in Hainan just two months earlier and still having neither commenced any substantive business activities nor prepared a full-year audit report, submitted to the local commerce authority a filing application for a $300 million overseas mineral investment. The application was ultimately directly intercepted and returned by the system. Previously, the enterprise had misinterpreted the policies of the Hainan Free Trade Port, believing that “simply completing registration would ensure smooth filing.” However, it overlooked the current regulatory stance in Hainan: the parent company making the investment must meet the basic requirements of “having been established for at least one year + providing a complete audit report.” Even if an urgent filing is necessary due to special circumstances such as a merger and acquisition window period, additional documents—including a “share transfer agreement for existing shares + proof of past performance by original shareholders”—must be submitted, and the approval process will be extended by an additional 30 working days.

Root cause of the violation: The investment entity was established recently and lacks a stable operating history, making it unable to demonstrate the risk management capabilities and sustained operational strength required for cross-border investments. This fundamentally contravenes the core regulatory principle of ODI filing—that “substantive operations take precedence.”

Case 2: “Mother Small, Child Large” — Funding Imbalance Leads to Rejection of High-Leverage Filing

The owner’s equity of a certain agricultural enterprise in Hainan amounts to only 50 million RMB, yet the company plans to invest 100 million USD to acquire a food-processing enterprise in Europe, resulting in a financial leverage ratio as high as 14 times. When filing its ODI registration, the company failed to provide any documents—including an additional-investment agreement, commitments from strategic shareholders, or a phased-investment plan—leading to the outright rejection of its registration application. In response to the rejection, the company argued that it would “secure financing channels at a later stage.” However, the regulatory authorities made it clear that overseas investments must strictly adhere to the principle of “prioritizing self-owned funds.” For projects that fail to demonstrate a match between their financial strength and investment scale, the authorities will directly conclude that there is a risk of funding chain disruption and will refuse to approve their registration.

Root cause of the violation: The scale of investment is severely mismatched with the financial strength of the investing entity, and no compliant mechanism has been established to replenish and safeguard funds. This fails to meet the core regulatory requirement under ODI registration—that risks must be “controllable”—and also violates the fundamental principle of ensuring the safety of funds in overseas investments.

Case 3: Shell operation with unclear sources of funding—registration will not be accepted.

A newly established Hainan-based technology company has no fixed business premises and lacks a core business team. Its sole purpose of registration is to engage in cross-border investment. The filing documents submitted by the company show that its book cash balance is only 8 million yuan, yet it claims to have 200 million yuan in proprietary funds earmarked for overseas investments. Moreover, the company was unable to explain the lawful origin of substantial personal fund transfers and failed to provide key supporting documents such as bank statements and redemption certificates for financial products. Ultimately, the regulatory authorities directly advised the company to withdraw its application and explicitly stated that its filing request would not be accepted.

Root cause of the violation: The investing entity is a typical shell company with no substantive operational activities to support it, and its source of funds cannot be effectively verified. This poses a potential risk of illegal fund transfers and regulatory evasion, failing to meet the basic qualification requirements for an investing entity.

Drawing on practical regulatory experience from Hainan’s ODI filing process, if a company encounters any of the aforementioned qualification deficiencies, it can advance rectification and improve its approval rate through the following four core measures: First, strengthen the operational foundation of the entity by ensuring that the company has been in existence for at least one year, providing a complete annual audit report, standardizing financial management systems and corporate governance structures, and avoiding shell-company operations. Second, optimize the capital allocation plan by increasing registered capital, bringing in strategic investors, or formulating a phased capital contribution plan (with the initial self-funded portion accounting for no less than 30%) to achieve a reasonable match between investment scale and financial strength. Third, clarify the legitimacy of funding sources by preparing in advance supporting documents such as bank statements, wealth management certificates, and shareholder contribution proofs, ensuring that each source of funds is traceable, legal, and compliant. Fourth, enhance the entity’s physical infrastructure by establishing a fixed office location in Hainan, assembling a core team that aligns with the business scope, and engaging in substantive domestic business activities closely linked to overseas investment projects.

Compared to explicit risks such as defects in the qualifications of investment entities, structural logic errors are more hidden and thus easier for companies to overlook. In practice, many enterprises have faced rejection of their filings due to issues like inverted hierarchical structures, unclear equity penetration, and confused functional positioning among multiple entities; some already initiated investment projects have even been required to make rectifications within a specified time frame. At the heart of these problems lies a fundamental violation of the core regulatory logic behind ODI filings: “dominance within China, clear structure, and functional alignment.”

Case 4: Inversion of the architectural hierarchy—offshore-led funding rejected

After Hainan’s customs closure and operational launch in December 2025, a certain individual planned to establish a cross-border holding structure spanning “mainland—Hainan—overseas.” The plan was to use a Hong Kong-based company as the investing entity to take a stake in the Hainan branch, which would then carry out direct overseas investments. The intention was to leverage Hainan’s policy advantages to simplify the filing procedures. However, when the ODI filing application was submitted, the proposal was directly rejected by the competent authorities. The regulatory body explicitly pointed out that the core requirement for ODI filing under the Hainan Free Trade Port is that “the investment must be led by an enterprise with substantial operations within China.” Overseas platforms can only serve as supporting functional entities, taking on roles such as financing and M&A assistance, but are strictly prohibited from serving as the primary investing entity or leading investor.

Root Cause of Violation: The architectural design exhibits a clear inversion of hierarchical structure, contravening the statutory requirement that “domestic entities should lead cross-border investments.” Essentially, this approach allows overseas entities to circumvent the qualification review and substantive operational oversight applicable to domestic investment entities, constituting a typical compliance risk behavior.

Case 5: The equity structure is unclear, and the beneficiary has been concealed—application returned.

In the ODI filing materials submitted by a Hainan-based enterprise, the equity structure was disclosed only up to the special-purpose company in the Cayman Islands. SPV ), no further details were disclosed regarding the underlying trust ownership structure or any affiliations with family funds, nor were key supporting documents such as the “Trust Establishment Agreement” and beneficiaries’ identity proofs submitted. After verification by the regulatory authorities, it was determined that the company had “concealed its ultimate beneficial owner,” and the authorities requested the company to supplement its documentation and refile its application. Previously, the company had mistakenly believed that “intermediate-layer structures did not need to be disclosed in detail,” but it overlooked the core requirement of the filing review: the equity structure must be clear and traceable, the identity of the ultimate beneficial owner must be explicitly identified, and it is strictly prohibited to use complex structures to evade regulatory oversight.

Root cause of the violation: Incomplete equity penetration verification; failure to accurately disclose the underlying beneficial owners and actual control relationships; existing... Regulatory arbitrage Potential risks such as illegal fund transfers do not meet the core regulatory standard of “clear and transparent structure” for ODI filings.

Case 6: Confusion over functional positioning and unclear responsibilities lead to delays in filing.

A certain group company in Hainan plans to jointly invest in the same overseas new-energy project with two affiliated subsidiaries, using these two subsidiaries as the joint entities for ODI filing. However, in the submitted filing documents, the group failed to specify the exact equity proportions of the two subsidiaries, their respective responsibilities and authorities, decision-making procedures, and risk-sharing arrangements. After review by the regulatory authorities, it was determined that the group’s organizational structure was “logically confused and prone to loopholes in cross-border fund supervision as well as conflicts of interest.” The authorities therefore required the group to restructure its organization, supplement detailed explanations of responsibilities and authorities, and resubmit the application—resulting directly in a 45-day delay in project advancement.

Root cause of the violation: In the structure of joint investment involving multiple entities, the functional roles of each entity are vaguely defined, the boundaries of rights and responsibilities are unclear, and a compliant mechanism for collaborative operations and risk-sharing has not been established. This fails to meet the ODI filing requirement that the “structural logic must be reasonable and risks must be controllable.”

The core compliance principles for architectural design are “dominance by domestic entities, clarity and transparency, and functional alignment.” In light of the practical regulatory requirements for ODI filings in Hainan, enterprises can complete rectification and optimization through the following four measures: First, establish the dominant role of domestic entities by designating enterprises in Hainan with genuine operational qualifications as the core investment entities; overseas platforms should only assume supporting functions such as financing and M&A assistance, and any inversion of the hierarchical structure must be firmly prohibited. Second, improve equity penetration disclosure by thoroughly mapping out equity relationships at all levels, clearly identifying the identities of ultimate beneficial owners, and submitting required supporting documents such as trust agreements and proof of shareholder identity to ensure full traceability throughout the entire structure. Third, clearly define the rights and responsibilities of multiple entities; if joint investments involve affiliated companies, it is essential to explicitly delineate key aspects such as capital contribution ratios, decision-making procedures, and risk-sharing arrangements, thereby avoiding functional confusion and disputes over responsibilities. Fourth, ensure that the architectural structure aligns with actual business scenarios by making sure that the equity hierarchy and the functions of each entity match the real needs of overseas investment projects, and by refraining from establishing empty shell intermediate structures that lack substantive functionality.

Based on the practical experience from the two typical cases mentioned above, after Hainan’s customs closure, the regulatory logic for ODI filings has undergone a fundamental shift. The previous filing model—“emphasizing form over substance”—has been completely phased out. For enterprises to ensure their filings are approved at first attempt and their investment projects proceed smoothly, they must firmly grasp the three core compliance principles.

First, adhere strictly to the bottom line of substantive operations. Investment entities must have a genuine office location, a core operational team, and regular business activities in Hainan. We will firmly prohibit irregular practices such as “rapid establishment and quick exit” and “shell-company operations,” ensuring that the entity’s qualifications are highly aligned with its overseas investment projects. Second, establish a compliance framework system. Always take domestically-based, substantively operating enterprises as the main driver, designing an equity structure that is clear, transparent, and functionally distinct. Fully disclose the ultimate beneficial owners and actual control relationships, thereby avoiding compliance risks such as inverted hierarchies and functional confusion. Third, proactively conduct compliance assessments. Before filing for registration, you may entrust a professional agency to carry out a compliance “pre-assessment check.” Focus on thoroughly verifying key elements such as the alignment of financial strength, the completeness of equity penetration, and the standardization of submitted documentation. This way, you can promptly address any compliance gaps in one go, avoiding project delays caused by subsequent document supplementation.