On June 29, 2012, 13 PRC government ministries, including the National Development and Reform Commission, the Ministry of Foreign Affairs, and the Ministry of Industry and Information Technology, jointly issued Implementing Opinions on Encouraging and Guiding Private Enterprises to Make Active Investment Abroad (the “Implementing Opinions”).(6) The Implementing Opinions took effect as of the date of their issuance. The Implementing Opinions seek to encourage private investment abroad by relaxing some of the restrictions currently in place.
On May 7, 2010, the State Council issued Certain Opinions on Encouraging and Guiding the Healthy Development of Private Investment (the “State Council Opinions”).(7) The State Council Opinions encourage private enterprises to “go abroad” and make investment overseas in various forms. In addition, the State Council Opinions require relevant government agencies to establish international cooperation as well as domestic regulatory schemes to protect private enterprises when they are investing abroad. The State Council Opinions also guarantee that private enterprises will enjoy the same treatment as other enterprises.
- General Guidance
According to the Implementing Opinions, private enterprises are encouraged to invest abroad in energy and natural resources development, the high-technology and advanced manufacturing industries, infrastructure construction, and the agricultural and service industries. Private companies will also be provided support to establish distribution centers abroad and to build up international distribution and logistics networks.
- Favorable Policies
The Implementing Opinions provide that certain policies should be adopted with respect to the following:
- Tax Credit Policy – A foreign income tax credit policy will be implemented in accordance with relevant existing laws and regulations.
- Financing – Domestic banks will be encouraged to do the following: provide floating capital loans, consortium loans, export credit, merger loans, and other financing support; accept foreign equity and assets as collateral; support offshore issuance of RMB or foreign currency bonds; encourage capital market financing; and guide and promote the establishment of equity investment funds making overseas investment.
- Customs – The export inspection process for highly credible private enterprises will be sped up.
- Foreign exchange – The approval process for converting RMB into foreign exchange to make outbound payments in cross-border trading businesses will be streamlined. Domestic individuals who have a direct interest in domestic private enterprises will be allowed to provide joint security for the private enterprises’ foreign affiliated company to allow it to obtain offshore financing. When foreign investors invest in an offshore holding company whose main business and assets are held by its Chinese subsidiaries, such foreign investors usually demand collateral from the Chinese subsidiaries and a guarantee from the founders, who are Chinese individuals. This provision may provide a possibility for domestic individuals to provide security for such offshore financing.
Improvement of General Investment Environment Abroad
- The use of Chinese currency (RMB) in overseas investment will be extended.
- The approval process for overseas investment will be simplified.
- The government will enter into more bilateral investment protection treaties, antidouble taxing treaties, and other investment-related treaties and use them to protect foreign investment by domestic private enterprises.
- The government will guide domestic private enterprises in responding to foreign antitrust review and litigation.
- The government will enhance efficiency of customs clearance and adopt an electronic system to speed up export-related formalities.
- The government will provide services, directly or through intermediate agencies, to private enterprises to assist them in gaining a better understanding of the politics, economics, laws, society, etc., of other countries, and provide requisite technical services and support.
- The government will educate private enterprises to recognize the importance of intellectual property protection and international branding establishment.
- The government will strive to protect Chinese citizens working abroad.
Compared with the State Council Opinions, the Implementing Opinions set forth more detailed policy requirements to encourage private enterprises to invest abroad. However, the Implementing Opinions provide only general guidance and do not put into place any supporting measures in substantive detail. Therefore, detailed implementing rules are still expected to be promulgated by relevant government agencies in connection with the policies set forth in the Implementing Opinions.
One hot topic at the moment is the cross-border use of RMB, including the use of RMB in international trade transactions, allowing foreigners to use RMB to invest directly in China or to invest in China’s securities markets, issuance of RMB bonds in Hong Kong, etc. In the future, it is expected that private enterprises may be able to use RMB to make investments abroad.