Access to financing and investment is of critical importance to the development of mining projects. In recent years, China has been an important source of capital for mining projects in Africa, contributing more than US$ 27 billion of investment in the African mining sector over the last decade. The Chinese government has recently further eased its control on approvals relating to outbound investment and the ability of Chinese corporates and individuals to provide credit support for outbound investments, which we expect will further increase the availability of Chinese capital to African mining projects.
Historically, Chinese investors were required to seek the approval of three key regulatory bodies for their outbound investments, including:
- the National Development and Reform Commission ("NDRC"),
- the Ministry of Commerce ("MOFCOM"), and
- the State Administration of Foreign Exchange ("SAFE").
If State-owned enterprises are involved, the approval of the State-owned Assets Supervision and Administration Commission is likely to be required also. Finally, approvals by industry regulators may be required for investments in or by specific sectors. The issuance of the 2013 Catalogue of Investment Projects Subject to Government Approval and related implementation measures by NDRC and MOFCOM signaled the start of significant changes to the regulatory landscape for Chinese outbound investments.
Over the course of 2013 and 2014, the Chinese government implemented several rounds of reforms, including:
1. Streamlining investment approval procedures
The cumbersome approval procedures under the previous regime were replaced with a more streamlined record-filing procedure for most outbound investment projects. Under the new system, only investments involving a sensitive country or region or industry will require NDRC and MOFCOM approval. All other investments only need to be recorded with NDRC and MOFCOM. Although record-filing still takes time and involves some amount of evaluation and discretion by the relevant agency, the reform is anticipated to significantly reduce uncertainty and shorten transaction timetables.1
2. Signalling the potential liberalisation of control over PRC residents' offshore activities
In the Relevant Foreign Exchange Administration Issues on People's Republic of China Residents Investing, Raising Finance Overseas and Engaging in Round-tripping Investment through Special Purpose Vehicles [Huifa No. 37] on 4 July 2014 ("Circular 37"), SAFE appears to have opened the door for PRC residents to use their offshore assets for investment as well as PRC enterprises to lend to existing special purpose vehicles. However, rules and interpretations issued by the People's Bank of China and the PRC Supreme People's Court have not yet caught up with SAFE's position, leaving a rather unclear and unsatisfactory position of law. However, Circular 37 signals that the Chinese government could be gradually shifting from a policy of strictly controlling PRC residents' offshore activities to overseeing their activities from a more macro perspective (i.e. monitoring and collecting useful information from the offshore investment and financings by PRC residents).
3. Liberalisation of ability of PRC corporates and individual to provide credit support
Under the previous regime, the provision of credit support by Chinese corporates for overseas investments and borrowings were subject to either prior case-by-case SAFE approval or SAFE quota, and personal guarantees provided by PRC nationals were only recognised by SAFE in very limited circumstances. These restrictions were removed on 1 June 2014. The new regime significantly expanded the ability of PRC corporates and nationals to provide credit support offshore2
These new policies and reforms have significantly streamlined the regulatory landscape for Chinese outbound investment and are certain to be well-received not only by the Chinese enterprises, but also international investors and financiers with interest in mining projects in Africa. The new regulatory landscape not only means outbound investments and financings by Chinese investors and financial institutions should now entail less regulatory uncertainty and take less time to complete, but also provides stakeholders with additional options when structuring credit support for difficult to bank projects.