The National Development and Reform Commission (NDRC), one of the Chinese regulators governing Chinese enterprises’ overseas investments, recently issued new rules to simplify the approval requirements for outbound investment transactions. The revised NRDC rules took effect on 8 May. The changes symbolise the Chinese government’s policy to encourage Chinese enterprises to internationalise and diversify their investment portfolios. These changes should help to clarify past uncertainties in the position of Chines investors abroad, which is good news for sellers outside China.
Generally, a Chinese enterprise needs to go through several steps for completing an overseas investment project, including:
- review by the NDRC
- the approval or filing at the Ministry of Commerce (MOFCOM)
- obtaining the registration certificate issued by the Chinese foreign exchange control authority, the State Administration of Foreign Exchange (SAFE), which enables the Chinese investor to pay the purchase price to its foreign counterparty.
And for Chinese State-owned enterprises:
- obtaining the endorsement of the Chinese State-Owned Assets Supervision and Administration Commission or its delegate.
Until recently, all overseas investments by Chinese investors (acquisition deals or incorporation of new foreign entities) were subject to the NDRC’s approval. An approval is generally an administrative formality which is more stringent than a filing under Chinese law.
The new rules took effect on 8 May 2014. Under these new rules:
- transactions with a value exceeding USD 1 billion require an approvalfrom the central NDRC office or its superior, the Chinese State Council
- transactions with a value below USD 1 billion only require filings with the competent NDRC offices.
More specifically, for transactions with a value below USD 1 billion:
- transactions with a value exceeding USD 300 million require filing with the central NDRC office (in Beijing)
- transactions with a value below USD 300 million require filing with the provincial NDRC office.
Documentation required for filing, compared to the previous approval requirements, has been simplified and the timeline for this formality has become more transparent. Also, since the NDRC process needs to be completed before the MOFCOM and SAFE formalities, simplification of the NDRC process will contribute to a faster PRC regulatory approval process. Chinese media have also reported that MOFCOM may soon follow the NDRC in simplifying its outbound investment review process.
These changes symbolise the Chinese government’s policy to encourage Chinese enterprises to internationalise and diversify their investment portfolios. Although the new rules still leave significant discretionary powers to the NDRC, these changes should be welcomed by non-Chinese sellers, for whom the role of a Chinese investor in a sales process should become more predictable.
One more specific aspect about the new NDRC rules is that it was previously unclear whether Chinese limited partners had to obtain NDRC approval when contributing subscriptions to foreign private equity funds. In previous cases, many Chinese PE investors could not carry out this approval / filing / registration process due to a lack of clear guidelines, and then failed to remit their money outside of China in a manner acceptable to these authorities. The new NDRC rules now expressly provide that these investments also fall under the scope of the new rules, and an NDRCapproval or filing will be required, as applicable.