The National Development and Reform Commission (the “NDRC”) recently issued the Administrative Measures for Ratification and Filing of Outbound Investment Projects (the “New NDRC Measures”) effective as of May 8, 2014.1 At about the same time, the Ministry of Commerce (“MOFCOM”) issued the draft Administrative Measures for Overseas Investment (the “MOFCOM Draft Measures”) for public comment.2 The New NDRC Measures and the MOFCOM Draft Measures aim to reduce administrative oversight of outbound investments by delegating more approval and filing authority to these regulators’ local counterparts.
Outbound investments by Chinese companies are subject to approval or filing procedures with the NDRC (or its local offices) and MOFCOM (or its local offices) before the investment is made. The NDRC, which has jurisdiction to review all fixed-asset investments, focuses on, among other factors, whether a project is in line with the industrial policies of the State and whether the prospective investor has the investment capacity to carry out the project. In turn, MOFCOM has the power to review all cross-border enterprise-formation matters whether by greenfield investment, merger and acquisition or otherwise. Under the New NDRC Measures and the MOFCOM Draft Measures, the filing process will take less time and be less burdensome, but the detailed specifications of the information required to be filed remain to be further clarified.
China’s outbound investment regime has undergone several rounds of changes aiming to simplify the procedure and delegate power from central government authorities to provincial or municipal authorities. The government’s latest initiative commenced when the State Council issued the Notice Regarding Issuance of the Catalogue of Investment Projects Subject to Government Approval in November 2013 (the “2013 Catalogue”). Among other things, the 2013 Catalogue established principles to govern whether an outbound investment matter will be subject to an approval or filing with NDRC and MOFCOM, and whether the review will be conducted by central-level authority or local authority. More outbound investments became subject to local filing procedures under the 2013 Catalogue, a change welcomed by the market as local filing procedures are typically more expeditious. The New NDRC Measures and the MOFCOM Draft Measures extend these principles by establishing specific details.
2. Approval and Filing Regime
|Type of Outbound Investment||Amount of Chinese Investment||NDRC Approval or Filing||MOFCOM Approval or Filing|
|Normal Outbound Investment||Conducted by centrally-managed state owned enterprises||US$ 1 billion or above||Approval by NDRC||Filing with MOFCOM|
|Less than US$ 1 billion||Filing with NDRC|
|Conducted by entities other than centrally-managed state owned enterprises||US$ 1 billion or above||Approval by NDRC||Filing with provincial level offices of MOFCOM|
|US$ 300 million or above but less than US$ 1 billion||Filing with NDRC|
|Less than US$ 300 million||Filing with provincial level offices of NDRC|
|Outbound investment in sensitive countries (regions) or sensitive industries||US$ 2 billion or above||Examined by NDRC and approval by the State Council||Approval by MOFCOM|
|Less than US$ 2 billion||Approval by NDRC|
Although the terms “sensitive countries (regions)” and “sensitive industries” are used in the New NDRC Measures and the MOFCOM Draft Measures, the definitions of these terms in the two regulations are slightly different.
|New NDRC Measures||MOFCOM Draft Measures|
|Sensitive Countries (Regions)||Countries that have not established diplomatic relations with China|
|Countries that are subject to international sanctions||Countries that are subject to sanctions by the United Nations|
|Countries or regions where a war or riot, etc. is ongoing|
|Sensitive Industries||Basic telecommunication operation, cross-border water resource development and utilization, large-scale land development, main power transmission lines, electrical grids, and news media||Industries involving products or technologies whose exportation is prohibited or restricted by China, or where multiple countries (regions) have an interest3 — e.g., a cross-border water resource development project.|
3. Shanghai Free Trade Zone
Outbound investments by entities within the Shanghai Free Trade Zone (the “SFTZ”) are regulated by the Administrative Measures for the Record-Filing of the Investment in and Establishment of Enterprises Overseas by Enterprises Within the China (Shanghai) Pilot Free Trade Zone effective as of October 1, 2013 and the Administrative Measures for the Record-Filing of Overseas Investment Projects of the China (Shanghai) Pilot Free Trade Zone effective as of October 1, 2013 (collectively, the “SFTZ Measures”).
According to the SFTZ Measures, outbound investments by entities within the SFTZ are subject to filing only with the Administrative Committee of the SFTZ except that (i) outbound investments in sensitive countries (regions) or sensitive industries (both of which terms have substantially the same scope as in the New NDRC Measures) are subject to approval from the NDRC, or review by NDRC plus approval by the State Council, and (ii) outbound investments (a) in countries or regions that have not established diplomatic relations with China, (b) in specifically designated countries or regions, (c) involving interests of multiple countries or regions, (d) involving establishment of offshore special purpose companies, (e) in energy and minerals, or (f) in industries where domestic investment needs to be attracted, are subject to the Administrative Measures for Overseas Investment (which is to be replaced by the MOFCOM Draft Measures).
Neither the New NDRC Measures nor the MOFCOM Draft Measures mentions outbound investments by entities within the SFTZ. It is generally believed that even after the effectiveness of the New NDRC Measures and the MOFCOM Draft Measures, the convenient one-stop-filing principle adopted by the SFTZ Measures will be retained, but the SFTZ Measures may be amended to bring them in line with the changes related to delegation of approval and filing authority to local authorities introduced by the New NDRC Measures and the MOFCOM Draft Measures.
The streamlined approval and filing procedures of the New NDRC Measures and the MOFCOM Draft Measures (if adopted) will provide additional impetus to China’s already robust outbound investment.
1 These measures will replace the current Interim Administrative Measures for Ratification of Outbound Investment Projects effective as of October 9, 2004.
2 These draft measures, if adopted, will replace the existing Administrative Measures for Overseas Investment effective as of May 1, 2009.
3 Because of the absence of a clear definition, this latter category is subject to being broadly interpreted. For example, a port which may be located in one country but whose operations may impact the interests of other countries that share the same sea area, could easily be deemed a matter involving “multiple countries (regions).”