On 17 May 2014, the National Development and Reform Commission (the “NDRC”) released Administrative Measures for the Approval and Recordation of Foreign Investment Projects (the “2014Measures”) to replace the Interim Measures for the Administration of Approval of Foreign Investment Projects (the “Interim Measures”), dated 9 October 2004. The 2014 Measures, which became effective on 17 June 2014, are applicable to foreign investment projects in China (such as foreign-invested partnership projects and foreign related M&A transactions), including projects funded by foreign investors with RMB.
The Administration Methods
Under the 2014 Measures, general recordal and limited approval requirements have replaced the extensive approval requirements contained in the Interim Measures. Pursuant to the 2014 Measures, only the following types of projects are subject to approval (rather than recordal):
- Projects that are classified as “encouraged” that require the Chinese party to hold a controlling share (including having a comparatively controlling share) under the Catalogue for Guiding Foreign Investment (the “Guiding Catalogue”). Such projects with a total investment amount of USD 300 million or more are subject to NDRC approval, while such projects with total investment amounts of less than USD 300 million are subject to local government approval.
- Projects that are classified as restricted under the Guiding Catalogue. Such projects (excluding real estate projects) with a total investment amount of USD 50 million or moreare subject to NDRC approval, while restricted sector projects with a total investment amount of less than USD 50 million and all restricted real estate projects are subject toprovincial government approval (which approval authority shall not be further delegated to the lower-level government entities).
- In addition to the Projects falling under Categories A and B above, foreign investment projects listed in items 1 through 11 of the Catalogue of Investment Projects Subject to Government Approval (2013 Version) (the “2013 Catalogue”) shall be subject to the relevant approvals set out in the 2013 Catalogue.
For Category A above, the NDRC’s approval authority has been increased to USD 300 million from the USD100 million under Interim Measures. In determining the total investment amount, the effect of any capital increase is included in the calculation. For foreign related M&A transactions, the “transaction amount” rather than total investment amount is used to classify the transaction. Pursuant to the Interim Measures, restricted real estate projects are now subject to provincial government approval rather than NDRC approval. Foreign investment projects that do not fall under Categories A through C are only subject to recordal filings with the NDRC.
The Application Documents and Conditions for the NDRC’s Approval
For projects subject to approval, the 2014 Measures set out the main content requirements for the application documents. Required items include information on the project and investor, analysis of resource utilization and environmental impact, and analysis of the economic and social impact of the Project. For M&A projects, required items include, amongst other items, information regarding financing, post-acquisition operating form and scope and equity structure of the acquisition. These requirements appear simpler than those set out in the Interim Measures.
The 2014 Measures place more emphasis on reasonable development and effective utilization of resources, national security and ecological security, and public interests as additional approval conditions compared to the Interim Measures. The 2014 Measures somewhat simplify and reduce the required supporting documentation, but extensive disclosure on the parties and project is still required. Some additional documentation is required under the 2014 Measures, such as an examination opinion on energy conservation issued by the energy conservation examination authority.
NDRC will issue standard forms of the relevant project application documentation and service guidelines to specify the application details for approval, including the required application documents, the handling procedures and the processing time.
Foreign Investment Projects Subject to Recordation
Although recordal is the NDRC’s newly adopted administrative method for foreign investment projects, the 2014 Measures only briefly touch on the recordal rules. It is expected that the local NDRC offices in charge of recordal will issue further guidance on the process.
Project Amendment Registration
The 2014 Measures address the major project amendments that require a registration update, including changes to location, investors or equity. The amendment registration for the approval or recorded project shall be filed with the competent authority in charge of approval or recordation based on the characteristics of the project after the amendment, regardless of its original approval authority.
Supervision and Administration
The 2014 Measures emphasize the intent to establish and/or perfect information systems to enhance the supervision and monitoring of foreign investment projects. The 2014 Measures forbid the financial institutions from granting loans or financing to the projects that have not carried out the requisite approval or recordal process.
In conclusion, the 2014 Measures simplify the procedures for approval and recordation of the foreign investment projects. The extent to which national treatment will be extended to foreign investors, however, is yet to be seen. These rules further do not impact MOFCOM requirements, which are expected to be relaxed in a similar manner.