On August 23, 2008, the Shanghai government issued four municipal regulations applicable to investment projects in Shanghai, which all took effect on September 1, 2008. These regulations were intended to supplement national regulations enacted by the PRC National Development and Reform Commission (the NDRC), the national authority that supervises and regulates investments, and facilitate the implementation of the NDRC’s regulations in Shanghai.

These four Shanghai-specific regulations are: (1) the Interim Measures of Shanghai Municipality for Approving Enterprises’ Investment Projects (Hu Fu Fa [2008] No. 33, the Approval Measures for Domestic Investment); (2) the Interim Measures of Shanghai Municipality for the Filing of Enterprise Investment Projects ( Hu Fu Fa [2008] No. 33, the Filing Measures for Domestic Investment); (3) the Interim Measures of Shanghai Municipality for the Administration of Approving Foreign Investment Projects (Hu Fu Fa [2008] No. 33, the Approval Measures for Foreign Investment); and (4) the Interim Measures for the Administration of Examination and Approval of Overseas Investment Projects (Hu Fu Fa [2008] No. 33, the Approval Measures for Overseas Investment).

The first two measures only govern domestic companies making fixed investments in Shanghai without the support of government funds, and do not apply to foreign invested projects or investment projects outside of China. The Shanghai Approval Measures for Foreign Investment apply to various types of foreign-invested projects in Shanghai, and the Shanghai Approval Measures for Overseas Investment are applicable to legal entities registered in Shanghai, including foreign invested enterprises (FIEs), that make investments overseas. Thus, foreign investors in Shanghai may find the Shanghai Approval Measures for Foreign Investment particularly relevant.

The Approval Measures for Foreign Investment regulates all investment projects in Shanghai by foreign investors in the form of Sino-foreign equity joint ventures, Sino-foreign cooperative joint ventures, wholly foreign owned enterprises, mergers with or acquisitions of domestic companies, and capital increases of FIEs.

Jurisdiction for Approval

Under the Shanghai Approval Measures for Foreign Investment, the Shanghai municipal authorities primarily in charge of foreign investment , certain entities designated by the Shanghai government, and the district-level Development and Reform Commissions, are the approval authorities for various foreign investment projects in Shanghai (collectively, the Shanghai Approval Authority). For any given foreign investment project, the specific authority that reviews and approves it depends on the project’s total amount of investment and whether the industry in which the investment is going to be made falls within the Encouraged category.

According to the Approval Measures for Foreign Investment and relevant national regulations, the Shanghai municipal authorities primarily in charge of foreign investment review and approve foreign investment projects in Shanghai (1) whose total amount of investment is less than US$100 million and fall within the Encouraged or Allowed category in the Catalogue of Industries for Guiding Foreign Investment (??????????, the Catalogue); and (2) whose total amount of investment is less than US$50 million, and fall within the Restricted category in the Catalogue. For foreign investment projects exceeding these amounts, the SDRC will review them and then submit them to the NDRC to approve.

Under the Approval Measures for Foreign Investment, the Shanghai government has designated several entities, including the administrative commissions of its bonded areas and development zones, to review and approve industrial investment projects that involve less than US$100 million and fall within the Encouraged or Allowed categories in the Catalogue, and other projects that involve less than US$30 million that are Encouraged or Allowed in the Catalogue. The central municipal districts will review and approve investments in the service trade sector with the same dollar caps and category restrictions.

Application Materials

To apply for approval, foreign companies considering investments in Shanghai must submit a project application report to the competent Shanghai Approval Authority. The project application report must contain certain key elements such as a brief introduction of the applicant and the project, an analysis of the development strategy, industry policy and industry access, an analysis regarding resource exploitation and comprehensive utilization, an analysis of the energy-saving plan, and an analysis of the potential economic and social impact.

In addition to the project application report, other materials are also needed for the Shanghai Approval Authority’s review, including: all investors’ certificates of incorporation or business licenses, audited financial statements and accounts of credit; letters of intent and board resolutions for capital increase and M&A projects); letters of intent for financing issued by the bank; urban planning assessment results issued by the planning authority; land use pre-assessment results issued by the real estate authority; environmental impact assessments issued by the environmental protection authority; approval from the supervising authority (if state-owned assets or land use rights are involved).

Approval Criteria

According to the Shanghai Approval Measures for Foreign Investment, to obtain approval from the Shanghai Approval Authority, the proposed project must be lawful and consistent with the nation’s macroeconomic plan, and it cannot conflict with public interest or violate antitrust provisions. It must also meet the requirements of the land use and urban planning, and be environmentally responsible. Lastly, the proposed plan must meet the national technical standards, and conform to laws and regulations on foreign exchange and capital investment.

Effect of Approval

Without approval from the competent Shanghai Approval Authority, foreign investors will not be able to complete subsequent formalities in terms of land use, urban planning, product quality, work safety, resources, company registration, foreign exchange, importation and taxes. The Shanghai Approval Measures for Foreign Investment provide that the authorities in charge of the abovementioned formalities may only proceed with their respective procedures if the foreign investors have received approval from the Shanghai Approval Authority.