Key Points:
- Less focused on evaluating desirability of establishment than on guidance and support
- Simplifies procedures for examination and approval
MOFCOM released the Administrative Measures for Overseas Investments (Measures) on 16 March 2009. The Measures, which took effect on 1 May 2009, replace the Regulations on Approval for Establishing Enterprises by Overseas Investment (2004).
The Measures reflect China’s ongoing interest in supporting outbound investment by PRC enterprises. However, they also reflect a departure from earlier approaches in that they are more deferential to companies’ own assessment of the bona fides of their proposed investment targets (i.e., there is less paternalism involved in evaluating whether the substance of a transaction is desirable) and more focused on providing service and support for PRC enterprises akin to that provided to US companies by the US Foreign Commercial Service.
The Measures provide the following incentives to overseas investment:
1. Delegation of authority for examination and approval. MOFCOM will reserve authority to examine and approve only certain major and sensitive investments including overseas investments of more than US$100 million and investments in some countries. Enterprises will be required to submit applications to the provincial counterparts of MOFCOM (“COFCOM”) for making only the following types of overseas investments:
a) Overseas investments by China-based parties of more than US$10 million but not more than US$100 million;
b) Overseas investments in energy and minerals; and
c) Overseas investments that require local investment promotions.
As a result, it is estimated that up to 85% of outbound investments will be simplified under the new rules.
2. Simplification of the procedures for examination and approval. Most overseas investment enterprises will obtain Enterprise Overseas Investment Certificates within three working days after submitting an application. The new measures indicate that the review process will not focus on substantive aspects. Investors will have more decision-making power regarding their investments. At the same time, they must take responsibility for them, particularly regarding the feasibility study from the economic or technical perspective.
3. Reduction of items on which embassies or consulates need to be consulted. MOFCOM will consult with commercial sections of PRC embassies or consulates overseas for opinions on central state-owned enterprises’ investment. For local enterprises, this requirement to consult with embassies or consulates applies only to the energy and mineral resource sectors. COFCOM, however, may exercise discretion on whether to seek opinions from embassies or consulates regarding other forms of investment.
The Measures also emphasize guidance and other services by:
1. Strengthening the provision of guidance and services for overseas investments. The Measures require MOFCOM to establish a system for guiding, promoting and enhancing overseas investment through cooperation with other departments.
Since releasing the Measures, MOFCOM has compiled a Guide to Countries (Regions) for Overseas Investment, which will be updated periodically.
2. Encouraging enterprises to adopt the standards already established by host countries. The Measures urge enterprises to comply with host country laws and regulations. At the same time, MOFCOM officials encourage investors to fully understand the policies, laws and regulations of the host country before making an investment.
Reports indicate that other governmental authorities involved in supervision of outside investment, including the National Development and Reform Commission and the State Administration of Foreign Exchange, will also implement new regulations regarding such investment. Their guidelines for drafting their own new regulations will likely be consistent with the Measures.
Government authorities are seeking to improve their efficiency and provide better guidance, service and information to China-based enterprises with respect to outside investment, rather than attempting to control investment via complicated and time-consuming administrative procedures. At the same time, the government is shifting part of the responsibility for risk control to investors by giving them more decision-making autonomy.
