Opening the gates for outbound investment

On April 10 2014, the National Development and Reform Commission (NDRC) officially promulgated the Measures for the Administration of Approval and Filing of Outbound Investment Projects (境外投资项目核准和备案管理办法) (New Measures), which came into effect on May 8 2014. The New Measures replaced the Tentative Measures for Administration of the Check and Approval of Overseas Investment Projects (境外投资项目核准暂行管理办法) issued in 2004 (Old Measures).

Consistent with the principles laid out by the PRC State Council in late 2013 in the List of Investment Projects Subject to Government Check and Approval (2013) (政府核准的投资项目目录（2013年本）), the New Measures streamline and simplify the regulatory and approval process for Chinese outbound investments, and delegate significant power to the NDRC at the provincial level. This reflects the government's aim to encourage and facilitate investments made by Chinese entities in foreign jurisdictions. The implications of the New Measures, however, go beyond de-regulation in China's continuing efforts to go global.

Defining outbound

Like the Old Measures, the New Measures apply to outbound investment projects (including establishment, merger or acquisition, equity participation, capital increase and reinvestment) carried out by all types of legal persons within the territory of the PRC (investors).

Outbound investments made by natural persons or other non-legal person entities – such as partnerships – in the PRC will be governed by separate measures that reference the New Measures.

Approval or filing requirements for an outbound investment through an offshore entity controlled by a PRC legal person have been eliminated, unless the investment involves the PRC parent providing financing or guarantee to the offshore entity. This change may be welcomed by Chinese investors intending to make outbound investments through offshore structures, as long as the Chinese parent entities do not provide financing or guarantees to the offshore structure. However, most outbound investments adopting offshore structures in practice still involve financing or guarantees provided by the Chinese parent entities, and, therefore, still require approval by or filing with the central or provincial level NDRC.

Relaxed requirements

Under the Old Measures, approval of the NDRC at various levels was mandatory for all outbound investments. The New Measures replace these approval requirements with a filing process, except where the investment amount exceeds US$1 billion (Rmb6.25 billion) or the project is in a sensitive country, region or sector. The NDRC's approval remains mandatory in both cases. Where the investment amount exceeds US$2 billion (Rmb12.5 billion) and the project is in a sensitive country, region or sector, the NDRC must submit its opinion to the State Council for final approval. In cases where the NDRC's approval is not required, the application can now be filed with the NDRC at the central or provincial level, depending on the nature of the Chinese investor (a central state-owned enterprise (central SOE) or any other type of entity) and the total investment amount of the project. A central SOE is an enterprise directly controlled and supervised by the State-owned Assets Supervision and Administration Commission of the State Council. The Old Measures had separate approval requirements for natural resources-based outbound investments, for which central NDRC approval was required if the investment amounted to US$300 million (Rmb1.88 billion) or more, and non-natural resources-based investments, for which central NDRC approval was required if the investment amounted to US$100 million (Rmb625 million) or more. This distinction no longer exists under the New Measures.

The investment amount equals the total amount of the Chinese investment made in an outbound investment project. Investment can be in the form of cash, negotiable instrument, tangible asset, intellectual property, technology, equity interest, debt or guarantee. The New Measures make it clear that the amount of outbound lending or guarantee will be counted towards the total investment amount in an outbound investment project.

“Sensitive countries or regions” have been defined to include countries which have no diplomatic ties with the PRC or are subject to international sanctions, together with other countries or regions in war or turmoil or otherwise deemed sensitive by the NDRC. The definition of “sensitive sectors” covers the operation of the telecommunication infrastructure business, the development and use of cross-border water resources, large-scale land development, power transmission grids and networks and mass media, as well as other sectors deemed sensitive by the NDRC. As neither definitions are exhaustive, the NDRC retains discretion in its interpretation of “sensitivity”.

Table 1. Approval and filing requirements of the NDRC