China: Legal Environment Overview On The Outbound Investment Of Chinese Enterprises

Last Updated: 1 February 2018
Article by Zhong Lin

The number and value of outbound investment by Chinese enterprises have been rising exponentially in recent years. According to the statistics released by the Ministry of Commerce (MOFCOM), Chinese investors have made outbound direct investment (ODI) in 7,961 enterprises of 164 countries/regions in 2016. The ODI amounted to RMB1.12992 trillion, up 53.7% year on year. 1 Among them, technology, media & telecommunications (TMT), real estate and the energy & mining were the top three sectors that attracted Chinese enterprises to invest overseas. 2 In the wake of the rapid expansion of the overseas mergers and acquisitions, the Chinese regulatory authorities promulgated new regulations to support competent enterprises in their rational and genuine overseas investments.

A brief introduction to the domestic legal administration of overseas investment by Chinese enterprises

Overseas investment by a Chinese enterprise is subject to the approval or record-filing of the National Development and Reform Commission (NDRC) or the Local Development and Reform Commissions and the approval or record-filing of the MOFCOM or the Local Commerce Departments. Upon the said approval or filing, the enterprise may handle foreign exchange registration and payment of foreign exchange directly through banks.

1. The NDRC and the Local Development and Reform Commissions

In accordance with the Administrative Measures for Approval and Record-filing of Outbound Investment Projects (Order of the NDRC No. 9, effective as of 8 May 2014, hereinafter the Order No.9) and the Decision on Revising Relevant Provisions of the Administrative Measures for Approval and Record-filing of Outbound Investment Projects and the Administrative Measures for Approval and Record-filing of Foreign Investment Projects (Order of the NDRC No. 20, effective as of 27 December 2014, hereinafter the Order No.20), the division of responsibilities between the NDRC and Local Development and Reform Commissions regarding the filing and approval of overseas investment projects are as below:

Approval/ filing authorities

Approval or filing

Scope of applications

Limitation period

State Council


  1. a Chinese outbound investment of USD2 billion or above, and
  2. involving sensitive country, region or industry

The NDRC puts forward the examination and verification opinion and reports to the State Council for approval within 20 working days from receiving the application (while the limitation period for the approval of the State Council is not clarified)



Outbound investment involving sensitive countries, regions or sensitive industries

Within 20 working days after receiving the application, extension of 10 extra days could be granted upon approval


  1. Outbound investment of USD300 million or above launched by local enterprises, not involving sensitive countries, regions or sensitive industries; or
  2. Outbound investment launched by central enterprises, not involving sensitive countries, regions or sensitive industries

Within seven working days after receiving the application

Project information report

For an overseas acquisition or bidding project in which the Chinese party invests USD300 million or above, the Chinese investor shall submit an information report to the NDRC and the NDRC shall issue a confirmation letter if the project conforms to the national outbound investment policy and the confirmation letter is the necessary document for applying approval of the NDRC

Within seven working days after receiving the project information report

Provincial Development and Reform Commission


Outbound investment below USD300 million launched by local enterprises, not involving sensitive countries, regions or sensitive industries

Within seven working days after receiving the application

To streamline administration and delegate power to the lower levels, the NDRC issued the Decision on the Amendment of Administrative Measures for Approval and Record-filing on Overseas Investment Projects (Draft for Public Comments) on 13 April 2016, with the purpose to amend the Order No. 9 in the below aspects: (1) delete the provisions relating to approval by the State Council, and only the outbound investment involving sensitive countries, regions or industries are subject to the approval of the NDRC, regardless of the value; (2) change the "confirmation letter" to "letter of acknowledgement" to play down the administrative approval nature of the confirmation letter. If such amendments are adopted, outbound investment will be further facilitated.

2. The MOFCOM and the Local Commerce Departments

In accordance with the Administrative Measures on Outbound Investment (Order No. 3 of the MOFCOM, effective as of 6 October 2014), the MOFCOM and Local Commerce Departments regulate the approval and filing of the outbound investment as follows:

Approval/Filing authorities


Scope of application

Limitation period



Outbound investment launched by central enterprises involving sensitive countries (regions) or sensitive industries

Within 20 working days after receiving the application


Other outbound investment projects launched by central enterprises

Within three working days after receiving the application

The Provincial Commerce Departments


Other outbound investment projects launched by local enterprises

Within three working days after receiving the application

3. Foreign exchange registration

The State Administration of Foreign Exchange issued the Circular on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies (Huifa [2015] No.13), effective as of 1 June 2015, to cancel the foreign exchange registration approval under overseas direct investment. The foreign exchange registration under overseas direct investment is directly reviewed and handled by banks through the capital account information system at the foreign exchange regulatory authority. Meanwhile the foreign exchange regulatory authorities strengthen the ex post regulation for banks. The circular intends to simplify the foreign exchange registration.

In addition, enterprises shall report to the MOFCOM in case of a concentration of undertakings if the outbound M&A satisfies the threshold; the listed companies shall also follow the special rules concerning the corporate governance, major assets restructuring and information disclosure of listed companies when they carry out overseas M&As.

China strengthened supervision on outbound investment recently

In order to stem capital outflows by domestic enterprises by falsifying business transactions to offset the risk of RMB devaluation, Chinese authorities imposed tighter controls to block domestic enterprises' attempts to move their money out of the country through foreign asset acquisitions since the second half of the year 2016.

1. Strengthen the supervision over foreign exchanges

On 6 December 2016, the NDRC, the MOFCOM, the People's Bank of China, and the State Administration of Foreign Exchange (SAFE) told reporters that they would pay close attention to the recent tendency of irrational foreign investment in real estate, hotels, cinemas, entertainment and sports clubs.

The SAFE has promulgated the Circular on Further Advancing the Reform of Foreign Exchange Administration and Improving Examination of Authenticity and Compliance (Huifa [2017] No.3, effective as of 26 January 2017). It further clarified that where a domestic institution handles registration and funds remittance formalities for foreign direct investment, in addition to submitting the relevant review materials in accordance with provisions, it shall also make a statement to the bank on the source of investment funds and funds usage (plan of the use), provide the board resolution (or resolution of partners), contract or other materials that can prove the authenticity. The bank shall reinforce the review of authenticity and compliance in the principle of "know your customer, know your customer's business and customer due diligence".

Subject to the said regulations and policies, we understand that outbound investment that is authentic and legally compliant will not be banned, but as the regulatory authority has strengthened the review on the authenticity and compliance of outbound investment, it is foreseeable that funds remittance would take more time.

2. China strengthened the supervision on the cross-border RMB payment

The People's Bank of China promulgated the Circular on Further Clarifying Certain Issues on Overseas RMB Lending Business by Domestic Enterprises (Yinfa [2016] No. 306, effective as of 26 November 2016). Domestic enterprises to engage in outbound loan business shall meet the requirements including the establishment time, equity relationship, scale of operations, source of funds, interest rate, authenticity and compliance. With regard to the overseas loans made by a domestic institution, the total of overseas loan balance shall not be higher than 30% of the ownership equity. Therefore the foreign exchange supervision was further strengthened in term of RMB outbound loan.

3. Strengthen regulation on overseas investments with CGEs

The State-owned Asset Supervision and Administration Commission (the SASAC) of the State Council promulgated the Measures for the Regulation of Overseas Investments by Enterprises under the Central Government (order No. 35 of the SASAC), effective as of 7 January 2017, to strengthen the administration over enterprises under the central government (CGEs). Specific stipulations are: (1) category-based administration: Create and release a negative list of outbound investment projects for CGEs to define outbound investment projects prohibited and those subject to special regulation. For any outbound investment project included in the category of prohibited outbound investment projects in the negative list, CGEs shall not make any investment; for any outbound investment project included in the special regulation category in the negative list, CGEs shall report to the SASAC which will perform the examination and decision-making procedures as the contributor; and for any outbound investment project outside the negative list, CGEs will make decisions by themselves according to their own development strategies and planning. (2) non-main business investment prohibited: CGEs are basically prohibited from non-main business outbound investment. Where under special circumstances CGEs need to engage in non-main business outbound investment, they shall report to the SASAC for examination and approval. Furthermore, they shall corporate with other CGEs who are competitive in the related business as their main business. (3) Investment supervision system: CGEs shall establish sound before-the-fact, during-the-fact and after-the-fact outbound investment system, enhancing information report, managing and preventing risks in the investment.

Our observations

Based on the analysis of the regulatory regime, we can conclude that the overall regulatory framework on overseas M&A activities has not gone through significant changes from the macro perspective. But the ongoing evolution in the recent years has indicated that regulators have been streamlining administration and delegating power to the lower levels and facilitating the approval formalities to encourage Chinese companies to expedite the "go global" initiative through authentic and legitimate transactions.

Since the second half of 2016, China adopted a series of measures to enhance the supervision and administration of outbound investment, guiding Chinese enterprises to operate in a real and legally compliant way and contribute to the economy development of China. Meanwhile as the Belt and Road strategy is moving ahead as national strategy, Chinese government has rolled out a raft of favorable policies to encourage outbound investments, and domestic enterprises are gearing up to embrace unprecedented opportunities to scoop up foreign assets.

We suggest Chinese enterprises to assess the legal environment before optimizing their planning on consolidated business structure, enhancing the feasibility study of the host country, and taking initiatives to communicate with competent authorities to make them fully understand the value and significance of the outbound investment. We further advise enterprises to consider multi-pronged approaches in settling investment funds, and to take advantage of both domestic and foreign financing channels – besides the remittance of domestic funds, they may seek overseas financing channel in order to mitigate the negative effects on the transaction resulting from fund issues. We will continue to keep watch on this practice area and provide support to your overseas ventures.


1 Website of the MOFCOM,accessed on 10 March 2017

2 Chinatimes:, accessed on 10 March 2017

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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