In December of 2013, the State Council promulgated the Catalogue of Investment Projects Subject to Governmental Verifications (2013) (《政府核准的投资项目目录(2013年本)》(“Catalogue”)), which provides that “If a domestic enterprise establishes an enterprise (other than financial enterprise) with overseas investments that involve sensitive countries and regions or sensitive industries, such foreign investments shall be verified by the Ministry of Commerce. In other circumstances, the Chinese central administrative enterprises shall file the foreign investments with the Ministry of Commerce. Local enterprises shall file their foreign investment(s) with the appropriate provincial government”. However, the Catalogue does not stipulate specific procedures for verification or filing. The Ministry of Commerce promulgated the Measures on the Administration of Overseas Investment (《境外投资管理办法》(“Measures”)) on September 6th, 2014. The Measures clearly set out the specific time and procedures for such verification and filing.

The Measures will come into effect on October 6th, 2014. On the same date, theMeasures on the Administration of Overseas Investment (《境外投资管理办法》(the “OldMeasures”)) promulgated in 2009 by the Ministry of Commerce will be repealed. The Measures will simplify the administrative verification procedure required for establishment of enterprises with overseas investments and will facilitate the overseas investment procedure.

  • For enterprises with overseas investments, the Measures will change the administrative process foroverall verification by the Ministry of Commerce and the provincial department of the Ministry of Commerce, and implement a new “filing as the primary process, verification as the supplemental process” mode of operation.

The overseas investments by domestic enterprises, which are in any sensitive countries and regions or involve any sensitive industries, are subject to the verification procedure; other overseas investments by domestic enterprises are subject to the filing procedure.

  • The countries subject to the verification procedure means that the countries that have not established diplomatic relations with China or the countries which are subject to the sanctions by the United Nations (please refer to the website of the Ministry of Foreign Affairs of Peoples Republic of China for the name list of countries that have not established diplomatic relations with Chinacs.mfa.gov.cn/zlbg/bgzl/qtzl/t1094257.shtml; please refer to the Chinese website of the United Nations for the name list of countries that are subject to the sanctions by the United Nations www.un.org/chinese/sc/committees/list_compend.shtml). If necessary, the Ministry of Commerce may publish separate name lists of other countries or regions that are subject to the verification procedure.
  • The industries subject to the verification procedure means the industries that involve the products and techniques restricted from export by Chinese government, or the industries that impact on the interests of more than one country or region. 

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The Measures: repeal the verification requirements for overseas investments with investment amount above a certain level and for establishing offshore special purpose vehicles; reduce the scope of overseas investments that are subject to the verification process; and repeal the requirement that “an enterprise shall obtain verification from the competent authority of the relevant government before the contract or agreement becomes effective regarding the overseas investment agreement signed by such an enterprise”. When an enterprise applies for overseas investment verification, the Measures do not require a Pre-report Form for Overseas M & A Items to be submitted if the overseas investments are related to merger and acquisition investment activity.

  • Shorten the time limit of verification and set out the filing procedures

The Measures shorten the time limit of verification for overseas investments by 5 business days, and provide that the filings for overseas investments subject to filing administrations will be completed within 3 business days. The details are as follows:

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  • Certificate of Enterprises with Overseas Investments
  • The Measures repeal the administrative process where only the Ministry of Commerce can issue the Certificate of Enterprises with Overseas Investments. The Measures provide that for overseas investments to be filed with the Ministry of Commerce or to be verified by the Ministry of Commerce, the Certificate of Enterprises with Overseas Investments will be issued by the Ministry of Commerce when filing or granting verification, and where overseas investments are to be filed with the provincial department of the Ministry of Commerce, the Certificate of Enterprises with Overseas Investments will be issued by the provincial department of the Ministry of Commerce (when filing).
  • The Measures provide that the Certificate of Enterprises with Overseas Investments is the evidence that an enterprise has completed the filing or has obtained the verification for overseas investment.
  • The Certificate of Enterprises with Overseas Investments contains more comprehensive information regarding overseas investment. The information such as ultimate overseas investment destination and the structure of investment by the Chinese sponsor is required to be completed in the Certificate of Enterprises with Overseas Investments.
  • Filing for the overseas investment by an Overseas Chinese-funded Enterprise
  • The Measures provide that the overseas investment by an overseas enterprise invested by a Chinese enterprise shall be filed by the Chinese enterprise with the competent department of the Ministry of Commerce after the completion of the overseas legal procedures. \ in relation to multiple tiers of overseas investment is required to be filled in the Record Table for Overseas Investment by Overseas Chinese-funded Enterprise.
  • The Record Table for Overseas Investment by Overseas Chinese-funded Enterprisecontains more comprehensive information regarding overseas investment by overseas Chinese-funded enterprise. The information such as a brief introduction of the overseas investment and the introduction in relation to multiple tiers of overseas investment is required to be filled in the Record Table for Overseas Investment by Overseas Chinese-funded Enterprise.

Except for the above changes, the Measures clarify some issues in the Old Measures, for example, in chapter V (Supplementary Provisions) adding the definition of “Chinese central enterprise”; in chapter VI (Penalty Provisions) adding penalty measures where an enterprise obtains verification or filing for overseas investment using improper means such as providing false materials or violates the overall principles of overseas investment.In such cases the penalty will be increased.

Based on the new rules and measures, the banks, when intending to grant financing support to Chinese entities in relation to outbound deals and business transactions, need to make corresponding adjustment on the financing terms and conditions.