China: Good News Or Bad News? Comments On The Circular Of The General Office Of The State Council On Forwarding The Guiding Opinions For Further Guiding And Regulating The Direction Of Outbound Investments

Last Updated: 3 January 2018
Article by Ying Zhang and Anjie Zhang

On August 18, the General Office of the State Council promulgated the Circular of the General Office of the State Council on Forwarding the Guiding Opinions of the National Development and Reform Commission, the Ministry of Commerce, the People's Bank of China and the Ministry of Foreign Affairs for Further Guiding and Regulating the Direction of Outbound Investments (hereinafter referred to as the "Circular"). The Circular is the first official regulatory document issued by the regulators since the significant change of outbound investment regulatory environment from the end of 2016, which specifies, among other things, that outbound investment projects of Chinese investors will be subject to classified management.


The Circular primarily includes the following provisions on the regulation of outbound investments by Chinese investors:

A. Expressly Introducing the Concept of "Negative Lists" / "Classified Management" into Outbound Investments

The Circular provides that "outbound investments by Chinese investors will be guided and regulated on the basis of "encouraging development & a negative list". According to the Circular, outbound investments will be classified into "encouraged", "restricted" and "prohibited":

1. Encouraged

  1. Outbound investments in infrastructure that help the construction of the "Belt and Road" initiative and the interconnection with neighboring infrastructure.
  2. Outbound investments that can facilitate the export of competitive production capacity, high-quality equipment and technical standards.
  3. Investments which may strengthen the investment cooperation with overseas high-tech and advanced manufacturing enterprises, and establishment of research and development centers abroad.
  4. Investments prudently participating in the exploration and exploitation of offshore energy resources, including oil and gas, and mineral (on the basis of prudently assessing the relevant economic benefits).
  5. Investments to expand outbound cooperation in agriculture, and for win-win cooperation in such sectors as farming, forestry, animal husbandry and fishery.
  6. Investments in such service sectors as commerce, culture and logistics, and establishment of branches and service networks abroad by qualified Chinese financial institutions.

2. Restricted

  1. Outbound investments in sensitive countries and regions which have not established diplomatic ties with China, are at war, or are restricted under the bilateral or multi-bilateral treaties or agreements to which China is a party.
  2. Outbound investments in such sectors as real estate, hotels, film theatres, entertainment, and sports clubs.
  3. Establishment of equity investment funds or investment platforms abroad without specific industrial projects.
  4. Investments using outdated production equipment which does not meet technical standards of the destination country.
  5. Outbound investments not meeting the standards for environmental protection, energy consumption and security of the destination country.

3. Prohibited

  1. Outbound investments that involve the export of core technologies and products in the military industry of China without the prior approval of the state.
  2. Outbound investments that utilize the technologies, processes or products prohibited from export by China.
  3. Outbound investments in such sectors as gambling and pornography.
  4. Outbound investments prohibited in international treaties to which China is a party or has acceded.
  5. Other outbound investments that endanger or may endanger the national interests and security of China.

B. Adjustment to the Existing Filing and Approval Procedures for Outbound Investments

Under the existing rules issued prior to the Circular, for outbound investments other than those to "sensitive countries and regions" or in "sensitive industries", filing (instead of verification/approval) procedures shall apply.

However, according to the Circular, the following types of outbound investments now will be changed to be subject to verification/approval procedures:

  1. Outbound investments in such sectors as real estate, hotels, film theatres, entertainment, and sports clubs; and
  2. Investments in equity investment funds or investment platforms abroad without specific industrial projects.

Furthermore, the Circular is unclear as to whether filing procedures still apply to the other two types of restricted outbound investment projects, which may need to be clarified in the relevant implementing rules to be issued following the Circular.

C. Written Adjustment to the Existing Regulatory Focus of Outbound Investments

Although officers of the regulators (including the National Development and Reform Commission on December 6, 2016, and officers of the Ministry of Commerce (on July 27, 2017) previously indicated to reporters on two separate occasions that "for outbound investments in sectors such as real estate, hotels, film studios, entertainment, and sports clubs, relevant enterprises are advised to make decisions prudently" in respect of tightened regulation on outbound investments by relevant Chinese authorities, no official written document has been promulgated. With the promulgation of the Circular, it is the first time to specify in a written document that such industries are classified as restricted and will be subject to tightened regulation. Furthermore, also for the first time1 the Circular expressly restricts enterprises "to establish equity investment funds or investment platforms abroad without specific industrial projects".

At the same time, the Circular also confirms in writing that "competent and qualified" domestic enterprises will be supported to make outbound investments. This means the review of competence and financing leverage of Chinese investors may also be further tightened.


The Circular is the first official document issued by the authorities since the significant change in the regulatory environment for outbound investments at the end of 2016. By officially introducing the new regulatory doctrine of "negative list of outbound investments made by enterprises",2 the Circular specifies adjustments and modifications to existing regulatory rules.

According to the wordings used in the Circular, we understand that the promulgation of the Circular likely serves to document the previous regulatory practice and experience since the end of 2016, to end embarrassing issues arising from the inconformity between the existing regulatory practice and written rules, and to help remedy the approval authorities' current rigid disapproval of all outbound investment projects due to unclear regulatory rules and practice. It can be reasonably foreseen that the Circular should be good news to those outbound investment projects made by qualified investors fitting the encouraged list. With the promulgation of the Circular and subsequent rules thereafter, the certainty that such outbound investment projects will be approved will be greatly enhanced. On the other hand, the promulgation of the Circular may not be good news for restricted projects or investments in overseas funds, which could be subject to even stricter scrutiny by Chinese regulators.

We have also noticed that the State Administration of Foreign Exchange (the SAFE), the regulator for outflow of funds for outbound investments, is not one of the promulgating authorities. It remains to be seen/clarified whether it is for the reason that the SAFE has no right to directly render a document to the State Council but may have to do so in the name of the People's Bank of China, as the SAFE is a vice-ministerial level entity administrated by the People's Bank of China, or otherwise.

The provisions of the Circular are similar to general principles in nature. Following the promulgation of the Circular, it is crucial to tell a specific outbound investment project will fall which category, encouraged, restricted or otherwise. Yet, the classification under the Circular is still discretionary and conceptual without a specific list of industries (unlike the catalogue for foreign investment in China). The Circular also does not mention how the abundant "permitted" projects which fall into neither "encouraged" or "restricted" or "forbidden" will be regulated. As such, it remains to be seen from the implementing rules to be issued and the regulatory practice after the Circular whether the Circular will truly bring general benefits to outbound investment projects.


1. Note: there were restrictions on establishing funds domestically before outbound investments.

2. Note: A similar concept of classified management has been introduced in the Measures for the Supervision and Administration of Outbound Investments by Central Enterprises promulgated by the State-owned Assets Supervision and Administration Commission on January 7, 2017, which provides that "...develop a negative list of outbound investment projects for central enterprises to carry out classified regulation of outbound investment projects made by central enterprises...". However, such provisions apply to outbound investments by Chinese centrally state-owned enterprises only.

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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