The State-owned Assets Supervision and Administration Commission of the State Council ("SASAC") promulgated the Interim Measures for the Supervision and Administration of the Outbound Investments by Central State-owned Enterprises (中央 企业境外投资监督管理暂行办法) (the "Outbound Investments Measures") on 18 March 2012. The Outbound Investments Measures become effective on 1 May 2012, representing perhaps the most significant attempt made by SASAC to regulate outbound investments made by Centrally-administered Stateowned Enterprises (央企) ("Central Enterprises") since issuing the Interim Measures for the Supervision and Administration of Overseas State-owned Assets of Centrally-administered State-owned Enterprises (the "Overseas State-owned Assets Measures") and the Interim Measures for the Administration of Overseas State-owned Property Rights of Centrally-administered State-owned Enterprises (the "Overseas State-owned Property Rights Measures"), both of which came into force on 1 July 2011.
In general terms, the Outbound Investments Measures focus on the filing of Central Enterprises' outbound investment plans/projects.
- LEGISLATIVE BACKGROUND
SASAC issued the Overseas State-owned Assets Measures and the Overseas State-owned Property Rights Measures in 2011 to specifically regulate the supervision and administration of outbound investments made by Central Enterprises and their subsidiaries and the rights and interests deriving from such investments.
1.1 The Overseas State-owned Assets Measures
The Overseas State-owned Assets Measures largely focus on the following principles and areas:
- putting SASAC and the Central Enterprises in charge of the supervision and administration of overseas stateowned assets;
- setting out general processes and principles that Central Enterprises should follow when making outbound investments, including decision-making and budgetary management of outbound investments, establishing or acquiring overseas enterprises, management of overseas funds, management systems for personnel and their remuneration, overseas financial derivatives businesses, and so forth;
- specifying general rules on the management systems for overseas wholly-owned or holding enterprises established by Central Enterprises or their subsidiaries;
- establishing a reporting system for major matters encountered during the investment process; and
- regulating both the internal management and external supervision of outbound investments.
1.2 The Overseas State-owned Property Rights Measures
The Overseas State-owned Property Rights Measures on the other hand address certain matters with respect to various forms of overseas rights and interests (not limited to wholly-owned or holding enterprises) as follows:
- they require that the overseas stateowned property rights be directly held by the relevant Central Enterprises or their subsidiaries;
- they stipulate assessment, filing, approval and procedural requirements for outbound capital contributions with respect to overseas state-owned property rights or overseas transfers of such property rights; and
- they stipulate requirements regarding the reporting, filing or approval systems where Central Enterprises make an Initial Public Offering overseas and changes regarding shareholdings in overseas listed companies.
The two above-mentioned regulations, together with the newly issued Outbound Investments Measures, constitute the core current administrative framework regulating outbound investments by Central Enterprises.
- SCOPE OF APPLICATION
The Outbound Investments Measures are applicable to investments by Central Enterprises and their whollyowned or holding subsidiaries at all levels in fixed assets, equity investments and other investments made outside mainland China, including investments in the Hong Kong Special Administrative Region, Macao Special Administrative Region or Taiwan Region.
- FILING WITH SASAC
The Outbound Investments Measures introduce various filing obligations with respect to outbound investments by Central Enterprises.
3.1 Filing of Management Systems on Outbound Investments
Under Article 6 of the Outbound Investments Measures, Central Enterprises shall report their management systems on outbound investments to SASAC for record filing. Such systems shall include the following main items:
- the guidelines and principles applicable to outbound investments;
- the names and functions of outbound investment management committees, departments, and so forth;
- the decision-making procedures and management processes in relation to outbound investments;
- investment risk management systems;
- the evaluation, appraisal, audit and liability investigation systems applicable to outbound investments; and
- the systems for supervision and administration of subordinate enterprises.
3.2 Annual Investment Plan Filing
Article 7 of the Outbound Investments Measures obliges Central Enterprises to compile an annual outbound investment plan and submit it to SASAC. Article 7 further provides that such plan shall include the following information:
- the overall investment scale, source and composition of funds used on outbound investments; and
- the basic information regarding key investment projects (including the investment background, subject matter of the investment, equity structure, investment location, investment amount, financing plan, the implementing terms, risk analysis and investment benefits, and so forth).
Article 7 also defines investment projects of Central Enterprises and their subsidiaries which in accordance with the internal outbound investment management systems are investigated and approved by the supreme investment decision-making body as key investment projects.
3.3 Filing of Key Investment Projects in the Main Business
Article 8 of the Outbound Investments Measures provides that Central Enterprises must file with SASAC key investment projects which form part of its main business listed in the annual outbound investment plan. Article 9 also provides that additional key investment projects relating to its main business which are not listed in the annual outbound investment plan must also be filed with SASAC, after completion of the internal decision-making process within the Central Enterprise.
- RESTRICTIONS ON INVESTMENTS IN NON-CORE BUSINESSES
Another noteworthy part of the Outbound Investments Measures are the restrictions on the outbound investments by Central Enterprises in non-core businesses.
4.1 General Rule
Based on Article 10 of the Outbound Investments Measures, in principle, Central Enterprises, must not make outbound investments in non-core businesses.
4.2 Application to SASAC for Approval
In the event that it becomes necessary to make investments in non-core businesses due to specific needs, such outbound investments will be subject to SASAC approval. Article 10 of the Outbound Investments Measures lists the materials that must be submitted when making an application for approval, being:
- a request for approval of a non-core business investment;
- the relevant decision-making documents with respect to the investment in a non-core business;
- the feasibility research report, due diligence report and other documents in relation to the investment project;
- the report on risk evaluation, risk control and risk prevention in relation to such investment projects; and
- other necessary documents.
Article 10 also requires SASAC to reach a decision within 20 working days. This approval requirement makes sense in that Chinese State-owned enterprises are far more likely to embark on an ill-considered overseas venture when straying outside their core areas of competence.
- REPORT REQUIREMENTS IN THE INVESTMENT PROCESS
Article 11 of the Outbound Investments Measures sets out that, in the event that important matters such as material changes to the subject matter of the investment, significant adjustments to the investment amount and significant changes to the equity structure arise during the course of implementation of an investment project, the Central Enterprise is required to report such events to SASAC.
It is clear that the Outbound Investments Measures have expanded and strengthened SASAC's administrative and supervisory powers over outbound investments by Central Enterprises, suggesting that there is a perceived need for better and tighter controls. By placing the Central Enterprises ex-ante planning process within SASAC's supervisory ambit on top of the investment management rules set out in the Overseas State-owned Assets Measures and the Overseas Stateowned Property Rights Measures promulgated last year, the Outbound Investment Measures clearly demonstrate SASAC's intent to exercise firmer and closer supervision over the risks associated with outbound investments.