Key Points:

  • Delegates approval authority for foreign invested enterprises within encouraged industries
  • Delegates approval authority for mergers and acquisitions by foreign investors and foreign invested enterprises (“FIEs”)
  • Delegates approval authority for amendments to foreign invested enterprises originally approved by MOFCOM
  • Delegates approval authority for foreign invested holding companies with registered capital of no more than US$100 million

The Ministry of Commerce of the PRC (“MOFCOM”) released two circulars in March to further delegate examination and approval authority for foreign investment to the local government: the MOFCOM Circular on Further Improving Examination and Approval of Foreign Investment (Shang Zi Han [2009] No. 7) and MOFCOM Circular on Delegation of Authority to Examine and Approve the Establishment of Foreign Invested Holding Companies (Shang Zi Han [2009] No. 8). Observers expect that the delegation of authority based on these two circulars may not only accelerate the approval process for foreign invested projects, but also increase their likelihood of success.

MOFCOM Circular on Further Improving Examination and Approval of Foreign Investment (“Circular No. 7”)

Circular No. 7 delegates approval authority for the establishment and subsequent amendment of FIE agreements within MOFCOM’s current list of examined and approved encouraged industries to local MOFCOM authorities at the provincial level (“Provincial MOFCOM”), as well as national economic and technological development zones, unless “state overall adjustment” is necessary.

For mergers and acquisitions of China-based enterprises by foreign investors or FIEs, approval authority will be designated to local authorities based on the amount of the transaction, rather than on the total amount of investment. Projects in encouraged or permitted industries can be approved locally if the transaction amount is below US$100 million. Local approval can also be obtained in restricted industries if the transaction amount does not exceed US$50 million.

FIEs originally approved by MOFCOM may now have any subsequent amendments of their enterprise agreements approved by Provincial MOFCOM, except for increases of registered capital above the quota verified by the State Development and Reform Commission and transfer of control from the China-based party to the foreign (non-China) party.

The previous practices of Provincial MOFCOM in establishing branches in China for FIEs varied from region to region. Some required examination and approval in advance of registration with the State Administration for Industry and Commerce (“SAIC”). Circular No. 7 clarifies this issue by stipulating that filing with the relevant local MOFCOM after registration is sufficient, unless other requirements are imposed by specific regulations. In addition, Circular No. 7 clarifies that the local MOFCOM authorities in subprovincial cities and national economic and technological development zones will have the same authority in examining and approving FIEs as previously delegated to the Provincial MOFCOM. Also, examination and approval in advance of the lifting of controls on equipment imports by FIEs is no longer required under Circular No. 7.

MOFCOM Circular on Delegation of Authority to Examine and Approve the Establishment of Foreign Invested Holding Companies (“Circular No. 8”)

Previously, the establishment of foreign invested holding companies required approval from MOFCOM, regardless of their registered capital. Circular No. 8 now delegates the approval authority for foreign invested holding companies with registered capital of US$100 million or less to Provincial MOFCOM, including subprovincial MOFCOM branches.

Similarly to Circular No. 7, Circular No. 8 permits foreign invested holding companies that were originally examined and approved by MOFCOM to have subsequent amendments to their operational agreements approved by Provincial MOFCOM, except for one-off increases of registered capital above US$100 million and changes of shareholder. However, Circular No. 8 also stipulates that foreign invested holding companies may not invest in areas that are closed to foreign investment, and Provincial MOFCOM may not further delegate their authority to other lower MOFCOM branches.