Australia is the biggest recipient of Chinese outbound foreign direct investment (OFDI), receiving 13.2% of China's total outbound investment over the past 8 years. China had, as at the end of 2012, cumulatively invested approximately A$51 billion in Australia.1
On 12 August 2012 the Chinese National Development and Reform Commission (NDRC) released new Draft Rules for China's Outbound Investments Administrative Measures for Approval of Outbound Investment Projects (Draft for Consultation) (Measures), which reduce a number regulatory requirements contained in the previous measures (dating back to 2004) in an effort to encourage more OFDI.
The consultation period for the Measures ended on 15 September 2012, however, the Measures must still be adopted and promulgated before taking effect.
The Measures remove the need for approval by the NDRC or its provincial level offices for transactions where:
- a domestic company has a foreign subsidiary;
- an overseas investment is made by the foreign subsidiary; and
- the domestic company does not provide the funds or a guarantee for the investment.
The Measures also state that NDRC approval is required before the other Chinese regulatory bodies such as the Ministry of Commerce (MOFCOM) or the State Administration of Foreign Exchange (SAFE) can approve any OFDI. While this suggests that NDRC is the superior administrative body, in fact the NDRC, MOFCOM and SAFE are all of the same official administrative level. This may cause some friction between the relevant administrative bodies depending on how willing MOFCOM and SAFE are to follow the lead of the NDRC.
Additional approvals may be required by proposed foreign investors if the investing Chinese entity is a State-owned Enterprise (SOE) as they may also require approval from the State-owned Assets Supervision and Administration Commission (SASAC).
Changes to the NDRC OFDI approval thresholds
The Measures proposed by the NDRC increase the approval thresholds for OFDI 10 fold, and would, once effective, require approvals for OFDI as follows:
- The Measures removed the need for domestic investors to acquire a confirmation letter from the NDRC for investments below 100 million.
Top Level Investment
- NDRC approval will be required for:
- resource development, transportation and infrastructure investment projects greater than USD300 million; and
- all other projects greater than USD100 million.
Mid Level Investment
- Entities will only be required to get Provincial level NDRC approval, but must file with the NDRC:
- For investments in resource development, transportation and infrastructure projects greater than USD30 million but less than USD300million; and
- all other projects greater than USD100 million but less than USD100million.
- Central SOEs regulated by the SASAC who are making an investment in the range listed above in 3(a) and 3(b) do not need provincial NDRC approval and need only file with the NDRC.
Low Level Investment
- Only provincial level NDRC approval is required for:
- resource development, transportation and infrastructure investment projects less than USD30 million; and
- all other projects less than USD10 million.
- NDRC or State Council approval is required for investment of any amount if they relate to a 'special project' which includes:
- Countries that do not have diplomatic relations with China;
- Countries that are under international sanctions or where war, riots or civil unrest is taking place; and
- The investment is in a sensitive area such as, telecommunications, infrastructure, cross-border water resources, large scale land development, power grids and networks and news and media.
While the approvals process for OFDI out of China may initially appear confusing, the continued relaxation of the approvals process towards a more supervisory role by the relevant government institutions signals a concerted effort by the Chinese government to continue to encourage OFDI.
Although the Chinese government is making OFDI easier and more flexible, Australian vendors and proponents should remain mindful of the relevant approvals needed and the timeframes for obtaining those approvals.
1KPMG's report Demystifying Chinese Investment in Australia March 2013
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.