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China's National Development and Reform Commission (NDRC) is
expected to shortly release new regulations governing the way in
which it assesses and approves investment projects. The new
regulations will supersede the NDRC's current investment
regulations, and will benefit those involved in inbound and
outbound Chinese investment projects by streamlining and clarifying
the approvals process.
Once the regulations are introduced, companies investing into
China and undertaking transactions with Chinese companies will need
to take the new procedures into account during negotiations and
transactions.
Here, partner Michael Hansel and solicitor Christopher Hewitt
explain the proposed changes.
What the new regulations mean for inbound and outbound
investors
The new regulations, if and when they are introduced, will
reinforce and strengthen the NDRC's role in overseeing inbound
foreign investment projects in China. Two increasingly popular
foreign investment vehicles, foreign-invested enterprises and
foreign-invested partnerships, will come within the scope of the
NDRC.
The responsibility of the provincial NDRC offices in verifying
and approving smaller inbound and outbound investment projects will
be increased.
The regulations also herald a new era of public participation
in the NDRC's economic and investment processes, with public
and social impacts directly considered in the assessment
process.
Key changes affecting inbound investment projects
Inbound investment into China using foreign-invested
enterprises and foreign-invested partnerships will require NDRC
approval. At the moment, most investments using these vehicles do
not require NDRC approval.
Foreign investments into China using Chinese currency will now
be subject to NDRC regulations and approval.
Large foreign investment projects ('encouraged' or
'permitted' projects of US$500 million or more, and
'restricted' projects of US$100 million or more) may be
assessed and verified by the NDRC without requiring State Council
verification.
In a move that will increase efficiency for many, smaller
foreign investment projects ('encouraged' or
'permitted' projects of US$300 million or less, and
'restricted' projects of US$50 million or less) may be
approved by provincial NDRC offices without national NDRC
approval.
Verification and approval for foreign investments in the
financial sector will be the responsibility of the regulatory
bodies for securities, banking and insurance, rather than the
NDRC.
Applications for foreign investment projects will need to
include a breakdown of the project's anticipated impact on
policy and planning, the economy, industry, the environment, energy
conservation and society.
The NDRC will now be expected to seek public comment for
foreign investment projects which may have a material public
interest.
If a Chinese company undertakes foreign investment through an
overseas subsidiary, it will no longer require NDRC approval if it
does not provide funding or financial guarantees.
The verification and approval of certain outbound investment by
Chinese companies will be delegated to provincial NDRC offices. The
outbound investment thresholds for approvals are significantly
higher for resources development, transportation and infrastructure
outbound investments.
The procedures for overseas bids and acquisitions by Chinese
companies will be simplified, including removing the requirements
for a NDRC confirmation letter in order to, among other things,
execute binding agreements and submit a bid over a target
company.
Other regulatory procedures will be simplified and streamlined,
including eliminating the requirement for NDRC approval for the
transfer of an overseas investment project that has previously been
subject to NDRC or State Council approval. Under the new
regulations, the terms of the transaction will only need to be
reported to the NDRC within 10 days of the completion of the
transfer.
The new regulations signify a stronger commitment by the
Government of China, and NDRC in particular, to providing greater
certainty in the inbound and outbound investment process. These
initial streamlining measures are an important step towards a
simpler investment approval system for Australians investing into
China, and Chinese investing into Australia.
Award-winning law firm HopgoodGanim offers
commercially-focused advice, coupled with reliable and responsive
service, to clients throughout Australia and across international
borders.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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