United States: China To Relax Governmental Approvals For Outbound Investment

Introduction

On December 2, 2013, the State Council issued the Circular Concerning Catalogue of Investment Projects Requiring Government Approval (2013 Version) (国务院关于发布政府核准的投资项目目录(2013年本)的通知 (the "2013 Catalogue") and introduced new changes1 to governmental approvals falling under the jurisdictions of the two approving authorities, the National Development and Reform Commission ("NDRC") and the Ministry of Commerce ("MOFCOM"). The objective is to overhaul China's decades-old, approval-based cross-border investment regulatory system that has restricted growth. The liberating effects from less approval requirements are deemed to bring a new boom in outbound investment to both private investors and Central SOEs (state-owned enterprises managed by the central government), covering a wider range of industries apart from natural resources related industries traditionally favored by Central SOEs.

Shortly after that, both NDRC and MOFCOM released detailed measures to implement the 2013 Catalogue and amended their former approval requirements.

NDRC's Approval for Outbound Investment Projects

On April 8, 2014, NDRC issued Measures for the Administration of Approval and Archival Filing of Overseas Investment Projects (境外投资项目核准和备案管理办法);(the "Measures"), which have recently taken effect on May 8, 2014. Generally, the Measures provide that only archival filing with NDRC and provincial DRC should be required for outbound investment projects that are below US$1 billion and do not involve sensitive countries and regions and sensitive industries2. For outbound investment projects that either reach US$1 billion or involve sensitive countries and regions and sensitive industries, NDRC approval is required.

Superseding the Interim Measures for the Administration of Examination and Approval of the Overseas Investment Projects (境外投资项目核准暂行管理办法) (the "Interim Measures") effective on October 9, 2004, the Measures to a large extent reduce the approval requirements for outbound investment projects and introduce an archival filing oriented system. For instance, only when the size of the investment reaches US$1 billion, NDRC approval should be required regardless of industry sector; however, previously, this threshold was as low as US$100 million for general transactions, and US$300 million for natural resources related transactions.

NDRC's approval and archival filing requirements are summarized in the following table3.

MOFCOM's Approval for Establishing an Offshore Non-Financial Enterprise with or without Investment Projects5

On April 16, 2014, MOFCOM started to solicit public comments over the draft of Measures for Overseas Investment Management (Amended)(境外投资管理办法修订)(the "Amended Measures") and the deadline has just came on May 15, 2014

The Amended Measures reduce the five circumstances subject to MOFCOM's approval to a single one. Previously, MOFCOM's approval should be required when: 1) making overseas investment in a country which has not established a diplomatic relationship with China; 2) making overseas investment in a specific country or region (such a country or region shall be determined by MOFCOM in conjunction with the Ministry of Foreign Affairs and other relevant departments); 3) making overseas investment with the amount of investment of the Chinese party being US$100 million or more; 4) making overseas investment which involves the interests of multiple countries or regions; or 5) setting up a special-purpose company overseas. However, under the Amended Measures, regardless of the investment size, only when sensitive countries and regions or sensitive industries6 are involved in establishing an offshore non-financial enterprise should MOFCOM's approval be required. Otherwise, investors are only subject to an archival filing with MOFCOM (Central SOEs for MOFCOM and other investors for provincial MOFCOM).

MOFCOM's approval and archival filing requirements are summarized in the following table.

Looking Ahead

With both detailed measures from NDRC and MOFCOM becoming effective in the next few months, outbound investment activities, offshore acquisitions are expected to increase as the regulatory hurdle is removed for PRC investors including private investors as well as Central and non-Central SOEs. For private Chinese entrepreneurs and domestic PE funds who tend to invest less than US$300 million, only archival filing with provincial DRC and provincial MOFCOM would be enough to clear their way to go global.

 Footnotes

1 The 2013 Catalogue provides that only those investments of US$1 billion or more and those involving sensitive countries and regions or sensitive industries are subject to NDRC's approval; other investments made by Central SOEs and investments of US$300 million or more made by local enterprises are subject to archival filing with NDRC. The 2013 Catalogue also provides that only establishing enterprises through outbound investment involving sensitive countries and regions or sensitive industries is subject to MOFCOM's approval; otherwise, Central SOEs are subject to archival filing with MOFCOM and local enterprises are subject to archival filing with provincial governments (provincial MOFCOM). The 2013 Catalogue defines neither "sensitive countries and regions" nor "sensitive industries".

2 The Measures define "sensitive countries and regions" as countries and regions without a formal diplomatic relationship with China or under international sanctions, at war, or in a state of unrest; and defines "sensitive industries" as basic telecommunication operations, cross-border water resources development and utilization, large-scale land development, main electrical grids, and news media. MOFCOM gives a similar definition of sensitive countries and regions; but gives a different definition of sensitive industries. See footnote 6.

3 For investments over US$300 million through offshore acquisitions or competitive biddings, the Measures require Chinese bidders to submit a "project information report" to NDRC applying for a confirmation letter before they are permitted to undertake any "substantive work". Such substantive work includes signing binding documentation, proposing binding fee quotes, and commencing foreign investment review process in the relevant jurisdictions of acquisitions (in offshore acquisitions); and making official bids (in competitive biddings). The purpose of this preliminary project information report regime is to avoid Chinese investors from competing against each other for the same assets at the ultimate cost to the State. In practice, NDRC will only issue one conformation letter, which is commonly dubbed as a "road pass", at a time for any given deal. Previously, this threshold was US$100 million.

4 The Measures further provide that when the size of outbound investment projects reaches US$2 billion in sensitive countries and regions or sensitive industries, NDRC should submit its review opinions to the State Council for approval.

5 NDRC is the approving authority for outbound investment projects; MOFCOM is the approving authority for establishing an offshore enterprise. When a PRC investor establishes an offshore enterprise without a specific investment project, only MOFCOM's approval is required; when a PRC investor establishes an offshore enterprise with a specific investment project, both NDRC and MOFCOM's approval are required. On the latter occasion, NDRC's approval is a pre-requisite to obtain MOFCOM's approval in practice.

6 The Amended Measures define "sensitive countries and regions" as countries and regions without a formal diplomatic relationship with China or under the United Nations' sanctions, at war, or in a state of unrest; and defines "sensitive industries" as using products and techniques that are restricted for export by China, and involving multi-national/regional interests. NDRC has a different definition for "sensitive industries". See footnote 2.

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.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
31 Jan 2019, Other, Los Angeles, United States

Invites you to join us for a private cooking class hosted by Parties that Cook!

31 Jan 2019, Conference, Los Angeles, United States

The Southern California Association of Corporate Counsel's In-House Counsel Conference

6 Feb 2019, Other, Los Angeles, United States

Please join Sheppard Mullin for cocktails & hors d'oeuvres during The Wind Power Finance & Investment Summit 2019

 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions