The Chinese government recently issued new rules to facilitate the approval procedure for the increasing outbound investments by Chinese companies. On 14 February 2011, the National Development and Reform Commission (“NDRC”) delegated part of its approval authority for outbound investment to its local branches, resulting in a more transparent and efficient approval procedure.

If Chinese companies want to invest abroad, they generally need government approval. Three government agencies share the responsibility for reviewing and approving such foreign investments by Chinese enterprises. NDRC is responsible for reviewing project feasibility and checking interference with China's laws and public interest. NDRC is an important regulator and a preliminary consultation with NDRC before signing any non-binding document is required. The Ministry of Commerce (“MOFCOM”) is responsible for reviewing the target country's political and economic situation, and checking interference with Chinese laws and public interest. The State Administration of Foreign Exchange (“SAFE”) is responsible for examining the source of the funds and approving the conversion of RMB into relevant foreign currencies. Any contracts or agreements in relation to outbound investments will not become effective until approvals are given by the relevant authorities.

In addition, sector-specific regulators such as the China Banking Regulatory Commission and the China Insurance Regulatory Commission may play a role when financial institutions or listed companies are involved in the outbound investments. If investments are made by state-owned entities, approval by the State-Owned Assets Supervision and Administration Commission (“SASAC”) is also required. In practice, approvals by NDRC and the MOFCOM are, however, considered to be the most crucial ones. Applications to other regulators for approval must be supported by NDRC and MOFCOM approvals.

Although the basic system for approving foreign investments by Chinese companies is in place, there are still some administrative hurdles, such as complicated procedures and uncertainty about approval time frames and criteria. After MOFCOM issued regulations to create more transparent approval procedures in 2009 and 2010, NDRC also simplified it's requirements on approvals by issuing the Notice on Delegation of Approval Authority for Overseas Investment Projects ("the Notice"). NDRC delegated part of its approval authority to provincial departments when the project is:

  • An outbound investment up to USD 100 million related to non-natural resources, or  
  • An outbound investment up to USD 300 million related to natural resources.  

The 120 state-owned enterprises under supervision of the central PRC government (central SASAC) do no longer need any NDRC approval for projects under the abovementioned thresholds. Regardless of the size of the investment, special projects, such as outbound investment in sensitive industries and/or countries, must always be approved by the NDRC and/or the State Council.

The Notice is an important step towards a more efficient and transparent approval procedure, but further improvement seems desirable. The Chinese government has expressed its intention to unveil new regulations to further address these issues.