China has further simplified its approval and filing procedures for outbound investment projects. The simplified procedures, issued by the China's Ministry of Commerce (MOFCOM), will come into effect on 6 October 2014.
The new simplified procedures are set out in the Measures for the Administration of Outbound Investment ("New MOFCOM Measures"), which were issued by MOFCOM on 6 September 2014. The New MOFCOM Measures implement the 2013 version of Catalogue of Investment Projects that Required Government Verification by the State Council ("2013 Catalogue"), issued in December 2013 (see our e-bulletin dated 26 December 2013). The NDRC's implementation rules ("NDRC Measures") were issued in April 2014.
We summarize below the highlights of the New MOFCOM Measures and identify issues that remain in need of clarification by MOFCOM.
1. Verification vs. filing
Outbound investment projects will be subject to either verification by or filing with MOFCOM or its local counterparts.
Verification will be required if the outbound investment involves sensitive countries/regions or sensitive industries. Sensitive countries/regions are those that:
- have not established diplomatic relations with China;
- are subject to United Nations sanctions.
If it considers it necessary, MOFCOM may separately issue a list of countries/regions that it deems sensitive.
Sensitive industries are industries involving products or technologies the exportation of which is restricted by China, or in which multiple countries/regions have an interest (for example, a cross-border railway project).
Outbound investments which are not subject to verification are only subject to filing with MOFCOM.
The key difference between verification and filing is that MOFCOM will substantively review projects subject to verification, while the filing procedure only involves a formal review to ensure that the filing is in order.
2. Level of authority
All verification will be conducted at the central-MOFCOM level. Centrally-administered enterprises must apply directly to MOFCOM at the central level. Other enterprises must apply to the provincial-level branch of MOFCOM, which will then forward the application to central-level MOFCOM for final verification.
For filings, centrally-administered enterprises must file directly with MOFCOM at the central level. Other enterprises will be required to file with the provincial-level branch of MOFCOM.
3. Time limits
MOFCOM must grant (or refuse to grant) verification for an outbound investment within 20 business days for centrally-administered enterprises, or 30 business days for other enterprises, from acceptance of a complete application.
MOFCOM has up to three business days to complete the filing process after receipt of a completed filing.
4. Outbound Investment Certificate
An Enterprise Outbound Investment Certificate will be issued to the applicant upon completion of the verification or filing process. The certificate is only valid for a period of two years, within which the applicant must carry out its outbound investment project.
5. Reporting requirement for re-investment
The New MOFCOM Measures provide a new reporting requirement for re-investment. The new reporting requirements replace the existing re-investment filing procedures.
According to the New MOFCOM Measures, if an overseas company invested by the applicant re-invests offshore, then the applicant must report the re-investment to MOFCOM after completion of the re-investment.
Although the New MOFCOM Measures provide helpful guidance with respect to MOFCOM's filing and verification procedures under the 2013 Catalogue, there are still a number of areas which remain in need of further clarification.
1. Inconsistencies between MOFCOM and NDRC rules
The New MOFCOM Measures and the NDRC Measures have different definitions of a few critical terms. These differences include different scopes of projects subject to verification and filing, and different definitions of sensitive countries and sensitive industries. These difference mean, for example, that an outbound investment subject to NDRC verification or filing may not be subject to MOFCOM verification or filing and vice versa. It remains to be seen whether or how the NDRC and MOFCOM will reconcile the inconsistencies in practice.
2. Relationship between the NDRC procedures and MOFCOM procedures
The NDRC Measures provide that the "relevant authorities" may not proceed with approvals or registrations for outbound investment if the project does not obtain the requisite NDRC verification or filing. Under the current MOFCOM procedures, completion of the NDRC verification or filing (where required) is a pre-requisite to MOFCOM verification or filing. However, the New MOFCOM Measures have removed this requirement. This leads to the question whether the NDRC procedures and MOFCOM procedures can be conducted concurrently once the New MOFCOM Measures come to effect.
3. Individual investors
The New MOFCOM Measures only apply to Chinese legal persons. For individual investors, the approval requirements and procedures for outbound investment remain unclear.
The New MOFCOM Measures demonstrate a continuing effort by the Chinese government to support and facilitate its "go global" strategy. With both MOFCOM and the NDRC having issued their respective rules implementing the 2013 Catalogue, it is expected that Chinese companies wishing to invest overseas may encounter less administrative burden in terms of domestic approval procedures. However, given the uncertainties in the New MOFCOM Measures, it remains to be seen how MOFCOM will interpret them and how they will affect China outbound transactions in practice.
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