COINS ACT VS CHINESE COMPANIES “CHUHAI“

The COINS Act Era: New Rules for Capital, "Chuhai," and Compliance

The signing of the Comprehensive Outbound Investment National Security (COINS) Act of 2025 marks a watershed moment in international trade law. By codifying the US outbound investment screening regime, Washington has moved beyond emergency executive measures to establish a permanent "reverse CFIUS" mechanism.

For Chinese companies engaged in "Chuhai" (going global) and the US legal practitioners advising them, the rules of engagement have fundamentally changed. This article details the updates, the specific impacts on Chinese expansion, and the strategic role of American counsel.

1. What is the COINS Act?

The COINS Act does not merely rubber-stamp previous restrictions; it expands and hardens them. Previously, outbound investment restrictions relied on the "Outbound Investment Security Program" (OISP) established by executive order. The COINS Act elevates this to statutory law with several critical updates:

A. Codification and Permanence

The most significant update is durability. While an Executive Order can be rescinded by a future President, the COINS Act is now federal law. It establishes a statutory mandate for the US Treasury to screen, and in many cases prohibit, US investments in specific foreign sectors.

B. Expanded "Covered Sectors"

The Act broadens the scope of technology considered "sensitive." While previous rules focused on semiconductors, quantum computing, and AI, the COINS Act adds:

• Hypersonic Systems: Technologies related to high-speed flight and missile delivery.

• High-Performance Computing (HPC): Supercomputing capabilities that could aid military modeling or cryptography.

• Rulemaking Authority: The Treasury Secretary is granted express authority to add new categories of technology that "enable military, surveillance, or cyber-enabled capabilities," suggesting the list will grow.

C. Broader Geographic Scope

The definition of "Country of Concern" has been statutorily expanded. While the primary target remains the People's Republic of China (including Hong Kong and Macau), the Act now explicitly applies the same restrictions to Russia, Iran, North Korea, Cuba, and the Maduro regime in Venezuela.

D. New Legal Terminology

The Act introduces specific statutory terms that will drive compliance:

• "Covered National Security Transaction": Defines exactly which deals (equity, JVs, greenfield) trigger the law.

• "Prohibited" vs. "Notifiable": A two-tier system where the most sensitive technologies face a flat ban, while less sensitive (but still critical) technologies require detailed disclosure to the US government.

2. Legal Impact on Chinese Companies ("Chuhai")

For Chinese enterprises pursuing "Chuhai"—the strategy of expanding overseas to escape fierce domestic competition—the COINS Act acts as a "capital filter." It specifically targets the integration of US capital and expertise into Chinese tech firms.

A. The "Knowledge & Network" Freeze

The COINS Act is not just about stopping money; it is about stopping "smart money." The law targets US private equity and venture capital because these investors bring intangible benefits: management expertise, global networks, and credibility.

• Impact: A Chinese AI startup looking to expand to Southeast Asia or Europe can no longer easily take a US VC lead investor to gain credibility. They lose access to the "seal of approval" that US institutional capital often provides for subsequent IPOs.

B. Forced Restructuring of Global Operations

Many "Chuhai" companies set up holding companies in neutral jurisdictions (like Singapore or Cayman Islands) to attract global capital.

• Impact: The COINS Act applies to "Covered Foreign Persons." If a Singapore-based subsidiary is majority-owned by a Chinese parent or derives its technology from China in a covered sector, it is likely still toxic to US investors. "Chuhai" companies may need to completely sever technical and equity ties with their PRC mainland operations to become investable—a "de-coupling" that is legally complex and operationally painful.

C. Joint Venture (JV) Paralysis

The Act covers "establishing a joint venture."

• Impact: A Chinese EV or battery maker looking to build a factory in a third country (e.g., Mexico or Hungary) with a US partner may find the deal prohibited if the technology transfer involves covered high-performance computing or AI-driven autonomous systems. This limits the ability of Chinese firms to localize in Western markets via partnership.

3. What Can an American Law Firm Do to Help?

As the regulatory wall rises, the value of specialized legal counsel increases. US law firms are the primary navigators of this new regime: Technical Classification & "Fuzzy Logic" Analysis; "Ring-Fencing" Structures; Utilizing the Treasury Feedback Process; and CFIUS & COINS Synergy Reviews, etc.