Recently, the PRC government issued a series of important rules and regulations to promote outbound investment by Chinese companies. Among these are new regulatory measures issued by two of the primary authorities responsible for approving overseas investments.
On 6 September 2014 the Ministry of Commerce (MOFCOM) issued a new version of its Measures on the Administration of Overseas Investment (MOFCOM Measures), which went into effect on 6 October. The MOFCOM Measures supplant the Measures for the Administration of Overseas Investment issued in 2009 (2009 Measures). The National Development and Reform Commission (NDRC) also issued the Measures on the Administration of Approval and Record-filing on Overseas Investment Projects (NDRC Measures) on 8 April 2014, which went into effect on 8 May.
This column focuses on the new changes introduced in the MOFCOM Measures. In the following issues, we will introduce the NDRC Measures and matters to be noted when completing the filing and application procedures for outbound investment projects in practice.
Compared with the 2009 Measures, the MOFCOM Measures contains a number of significant changes that generally relax previous approval requirements on PRC companies investing abroad.
Less approval, more filing for record
Under the new rules, only overseas investment projects involving sensitive regions or industries require MOFCOM approval. All other overseas investment projects may be undertaken with only a filing for the record made with MOFCOM.
According to MOFCOM, it approved 6,608 overseas investment projects in 2013. Of those, only approximately 100 would have required approval under the new scheme. In other words, around 98% of the projects that previously had required approval would now only need to make a record filing.
Power further limited
In addition, the MOFCOM Measures repeal the requirement that investing entities obtain MOFCOM approval before either establishing an offshore special-purpose vehicle (SPV) or making an overseas investment that exceeds a certain amount.
These changes further limit MOFCOM’s approval power over overseas investments. From an investor’s perspective, whether the amount of an overseas investment will trigger MOFCOM approval is no longer an issue (although NDRC approval may still be triggered). In addition, given the proliferation of SPVs in overseas investment, the MOFCOM Measures’ elimination of the approval requirement for establishing an SPV overseas will greatly facilitate the design of investment structures and expedite the transaction process.
After the new rules have taken effect, overseas investments subject to MOFCOM approval will only need to be approved by the central MOFCOM authorities, and not the provincial-level branches. For record filings, central state-owned enterprises (SOEs) will need to submit filings to the central MOFCOM, whereas other entities may make submissions to their local MOFCOM bureau at the provincial level.
Under the MOFCOM Measures, the required documents are shorter, and the time limit for approval and filings have been cut by five business days. Now, a decision on an SOE’s approval application must be issued within 20 business days, whereas domestic enterprises’ approval applications must be processed within 30. Overseas investments subject to record filing must be processed within three working days (which is derived from the simplified process under the 2009 Measures).
More freedom in timing
The MOFCOM Measures have removed the requirement that “an enterprise shall obtain the approval of a competent governmental department before an overseas investment contract or agreement concluded by it with a foreign party becomes effective”. Enterprises now appear free to determine when to apply for approval or filing, whether before or after an overseas investment contract is signed and becomes effective.
It is worth noting that these changes do not mean that other foreign investment-related departments will adopt similar policies. For example, the NDRC Measures continue to require that NDRC’s approval be obtained before any investment contract becomes effective.
That said, the coordination of government approvals appears to have been eased considerably. The MOFCOM Measures no longer requires that entities submit approval or filing documents issued by other government authorities as part of its MOFCOM approval application. That means MOFCOM approval will no longer hinge on obtaining approval from other authorities (i.e. NDRC), thereby allowing entities to submit filings or approval applications with MOFCOM and NDRC simultaneously. This likely will significantly reduce the coordination to be done between departments, and allow overseas investments to be made more quickly and efficiently.
Overall, the new MOFCOM Measures would appear to be a positive development. Enterprises investing overseas now appear to have greater autonomy, while investment thresholds and time requirements have both been adjusted for the better, which likely will help PRC enterprises to expand in overseas markets. Further, this reform by no means indicates that the Chinese government will permit PRC enterprises to indiscriminately expend capital overseas, however investing enterprises will now need to take on more risk by themselves. Enterprises, with the professional support of domestic and international counsel on financial, tax and legal issues, will need to expend greater efforts in designing deal structures, conducting due diligence, preparing transaction documents, and planning their approval process to reduce and avoid risks for overseas investments effectively.
In the next issue, we will discuss the difference between the MOFCOM Measures and the NDRC Measures, along with matters to be noted when completing the filing and application procedures for outbound investment projects after the promulgation of these new rules.
Zhang Jida and Owen Yang are partners in the Beijing office of DaHui Lawyers
Suite 3720, China World Tower
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