Approval threshold significantly lowered in NDRC outbound investment rules

By Zhang Jida and Owen Yang, DaHui Lawyers
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Our previous two columns introduced the Ministry of Commerce’s new regulations on outbound investment. This issue we will introduce related rules issued last April by the National Development and Reform Commission (NDRC).

张继达 Zhang Jida 达辉律师事务所 北京办公室合伙人 Partner DaHui Lawyers Beijing
张继达
Zhang Jida
达辉律师事务所
北京办公室合伙人
Partner
DaHui Lawyers
Beijing

After issuing the Measures for the Administration of the Approval and Record-filing of Overseas Investment Projects, NDRC issued a series of rules to supplement and amend the measures, including those set out below.

  • Notice on Matters Concerning the Implementation of the Measures for the Administration of Approval and Record-filing of Overseas Investment Projects (issued 14 May 2014)
  • Notice on Launching the Nationwide Network System for the Record-filing Administration of Overseas Investment Projects (issued 22 June 2014)
  • Decision to Amend the Relevant Clauses of the Measures for the Administration of Approval and Record-filing of Overseas Investment Projects and the Measures for the Administration of Approval and Record-filing of Foreign-funded Projects (issued 27 December 2014).

Systemic changes

The measures along with the above rules create significant changes to the NDRC’s outbound investment approval and filing procedures, evident in five areas.

杨锋 Owen Yang 达辉律师事务所 北京办公室合伙人 Partner DaHui Lawyers Beijing
杨锋
Owen Yang
达辉律师事务所
北京办公室合伙人
Partner
DaHui Lawyers
Beijing

Procedural shift from approval to filing supplemented by approval. The measures set out that only outbound investment projects involving sensitive countries and regions or sensitive industries require NDRC approval. Projects with US$2 billion or more of Chinese investment are also subject to NDRC examination and then submitted to the State Council for approval. Other projects are only subject to filing. (See the table below.)

Conditions for filing and approval. The factors for approval and filing are basically the same under the measures. Namely, that the projects are in compliance with national laws and regulations, industrial policies and policies for outbound investment; compliance with the relevant rules on state management of capital accounts; possibility of endangering state sovereignty, security and public interest; and corresponding investment capabilities possessed by investors.

NDRC obviously retains a large discretionary power as to whether to permit a project to be filed or to grant approval for a project.

Procedural simplification. To reduce processing time, companies may directly submit their application for projects subject to approval to their local provincial development and reform commission (provincial DRC).

There is a time limit of 20 working days for NDRC processing and approval, subject to a 10-day extension with authorization by the NDRC head. The project evaluation period is excluded from this 20-day approval period and cannot exceed 40 working days in principle.

The time limit for NDRC to render a decision on filed projects is seven working days. The time limits on projects filed with the provincial DRC are inconsistent, however seven working days is the applicable limit in many provinces.

Deadlines. The deadlines for filing and obtaining approval for a project have been relaxed to a certain degree.

The measures require that oubound investors obtain a letter confirming approval or a notice of filing issued by NDRC “prior to the execution of any document which has final legal binding effect with a foreign party”.

The measures also provide that “obtaining a letter of confirmation or a notice of filing from NDRC may be specified as a condition precedent in an executed document”.

Project data reporting. The measures have preserved the investment project data reporting regime.

For overseas acquisitions or bids on projects with Chinese investment valued at US$300 million or more, investors must submit a project report to NDRC before undertaking substantial works with foreign parties. These substantial works include reaching binding agreements with, and making binding offers to, a foreign party, filing applications to review departments of the government of the jurisdiction of the other party and making formal bids.

NDRC will issue a confirmation letter within seven working days of receipt of the report provided that the project does not violate outbound investment policies.

Conclusion

NDRC’s rules for outbound investment have substantially lowered the thresholds for approval. They have also simplified approval procedures for Chinese outbound investment, while maintaining the project reporting regime. NDRC retains a great deal of discretion by using essentially the same conditions to examine projects that are filed for the record and reported for approval.

Chinese companies must continue to pay considerable attention to NDRC’s requirements for approval to ensure that projects and documentation conform to all requirements under these rules.

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owen.yang@DaHuiLawyers.com

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