Even as China deepened its review into Meta’s acquisition of Manus, another long-running technology standoff was brought to a close. After six years of sustained political and regulatory pressure, ByteDance finalized a deal over TikTok to establish a majority American-owned joint venture designed to secure U.S. data and avert a U.S. ban on the platform.
Taken together, these two high-profile episodes signal a shrinking strategic space for Chinese technology companies pursuing global expansion and expose a growing paradox at the core of Beijing’s technology regulation.
How China’s tightening regulatory framework is reshaping its technology firms’ global expansion – and what this policy shift implies for its technological trajectory and competition with the U.S. – has become an increasingly urgent question for policymakers in Beijing. Chinese technology companies’ outward expansion is no longer driven purely by market logic but is increasingly shaped by geopolitical risk management. Meanwhile, Beijing’s technology regulation faces a growing paradox: efforts to tighten control over technology outflows are increasingly in tension with the need to sustain domestic innovation and global competitiveness.
Domestic Regulation as a New Gatekeeper
Over the past several years, China has significantly tightened regulatory oversight over exports involving mineral resources and core technologies through an expanding body of domestic regulations and laws, including a more comprehensive export control regime and strengthened data security regulations. This evolving regulatory framework now covers a wide range of critical minerals involving rare earths, as well as advanced technologies such as drones and AI-enabled systems. Measures initially introduced to counter U.S. tariffs and technology restrictions and to protect China’s technological advantages have increasingly served as a new gatekeeper over Chinese technology companies’ “going out.”
As these domestic regulations tighten, global expansion is no longer a decision firms can make solely based on market opportunities or capital access. Instead, it increasingly requires alignment with domestic regulatory priorities and national security considerations. This shift points to a broader recalibration in China’s approach to technology regulation. Rather than retreating from globalization, Beijing is seeking to embed its “going out” strategy within a tighter framework of domestic oversight – particularly in sectors deemed strategically sensitive amid intensifying China-U.S. technological competition.
Emerging Challenges for Chinese Technology Companies
Chinese technology firms are increasingly confronted with a convergence of structural challenges across both global and domestic markets. First, U.S. export controls have sharply restricted China’s access to advanced semiconductors, particularly in cutting-edge fields such as artificial intelligence. Limited access to high-performance chips constrains computing capacity and large-model training, making it increasingly difficult for Chinese AI developers to keep pace with their U.S. counterparts. These constraints are forcing firms to rely on costly workarounds such as cloud rentals or less efficient domestic substitutes, which, over time, risk widening technological gaps rather than merely postponing commercialization.
Second, while corporate strategies aimed at reducing exposure to China have gained traction as a means of managing geopolitical risk, they have not fundamentally alleviated the dual constraints Chinese firms face. As illustrated by the TikTok and Manus cases, corporate separation from the domestic market does not erase these tech giants’ Chinese roots, which continue to trigger heightened scrutiny from both domestic and foreign regulators.
Formal investigations into foreign investment, cross-border data transfers, and sales of emerging technologies are often lengthy and uncertain, generating substantial compliance burdens, financing constraints, and opportunity costs – pressures that are particularly acute for technology firms dependent on sustained capital inflows to support research, development, and operating expenses.
Third, China’s domestic market environment compounds these constraints in less visible but equally consequential ways. China’s tech sector has become increasingly characterized by involution-style competition, where fierce price wars have eroded commercial profitability and reinforced deflationary dynamics across the economy. Meanwhile, domestic demand for advanced technologies remains highly cost-sensitive, limiting firms’ ability to build scalable revenue models comparable to those of global peers. High upfront investments in research, talent, and infrastructure, coupled with uncertain revenue growth at home, put sustained pressure on firms’ commercial viability and push them to rely more on overseas capital and international markets as alternative engines for innovation and growth.
Implications for China’s Technological Development and Competition with the U.S.
Corporate washing strategies reflect only one coping approach adopted by Chinese technology firms. There is a deeper structural dilemma facing the Chinese technology sector. While tighter domestic regulation may enhance short-term control over technology outflows and associated national security risks, it also risks constraining the conditions necessary for long-term capability accumulation across the broader innovation ecosystem at home.
If domestic regulations continue to tighten while external barriers remain firmly in place, the commercial viability of remaining anchored in the domestic market is likely to weaken. Beyond the washing strategy – relocating headquarters after a company’s founding in China – a more consequential shift may emerge: Chinese technology talent choosing to launch and scale ventures directly overseas.
This shift would not simply involve firm relocation or talent outflows, but signal a reallocation of where innovation is incubated, commercialized, and scaled. The risk, therefore, is not merely the outward movement of individual firms or talent, but the relocation of core innovation stages beyond China’s borders.
These dynamics also carry important implications for China’s technological competition with the United States. As leadership in advanced technologies increasingly depends on firms’ ability to scale rapidly, integrate into global innovation networks, and shape international market standards, the mounting constraints faced by Chinese technology firms – both at home and abroad – may gradually undermine China’s technological development and competitive position. In this sense, the paradox Beijing confronts is how to regulate technology outflows without stifling its “going out” strategy in the tech sector, while sustaining domestic innovation and global competitiveness in a rivalry where innovation momentum, ecosystem robustness, and global market access matter as much as the possession of technology itself.
