New Rules Simplify the Filing and Approval of Outbound Investment Projects
On September 6, 2014, the Ministry of Commerce (“MOFCOM”) issued the Outbound Investment Management Rules (the “Rules”), which took effect on October 6, 2014. The Rules have replaced old MOFCOM regulations regarding Chinese outbound investment projects. On April 8 2014, the National Development and Reform Commission (“NDRC”) issued a regulation regarding measures for the administrative approval and filing of outbound investment projects (the “Measures”). The Rules together with the Measures provide clear and simplified guidelines for the outbound investment.
The main changes of the Rules are described as follows:
1. Establishment of Filing-Oriented Mechanism
According to old MOFCOM rules on outbound investment projects, the Chinese government applied the “approval-based mechanism” which requested Chinese investors to obtain MOFCOM’s approval for investments over specific amounts, or investments in sensitive countries and regions and fields, etc. The government level (state or provincial) depends on the scale of transactions.
However, the Rules have established the “filing-oriented mechanism” as the main supervision method for normal non-financial sector outbound investment projects, which are only subject to the filing with MOFCOM (where the investment involves centrally-administered state-owned enterprises) or its provincial branches (regardless of the scale of the transaction). As the only exception, non-financial sector outbound investments in “sensitive countries and regions” and “sensitive fields” shall be approved by MOFCOM.
For the purpose of the Rules, the term “sensitive countries and regions” includes countries which have no diplomatic relations with China and the countries or regions which are under sanctions by the United Nations. The term “sensitive fields” includes industries relating to exportation of products and technology which are restricted to export by Chinese government, as well as industries influence interests of more than one country or region.
2. Simplified Application Process
The new Rules significantly simplify the approval and filing procedures, and also reduce the timeline for the review of outbound investment projects.
a. Outbound Investment Filing Process
Under the Rules, the Chinese investor/applicant is required to complete an outbound investment filing form (the “Form”) with the company stamp and submit it together with a copy of its business license to the MOFCOM for filing. Except the project subject to the approval by MOFCOM aforementioned, as long as the Form is complete and accurate and all information is true, the project shall be filed by MOFCOM within 3 working days after receiving the application. Meanwhile, the MOFCOM shall issue an outbound investment certificate (the “Certificate”) to the applicant.
b. Outbound Investment Approval Process
The Rules have also simplified the MOFCOM approval process for outbound investment projects.
i. For the application documents, the outbound M&A prophase report requested under the old rules has been excluded from required application documents under the new Rules.
ii. For the timeline of approval by the MOFCOM, the new Rules have reduced by 5 days comparing to the old rules. Specifically, the whole process of the approval by MOFCOM (state level) will take within 20 working days in total and the whole process of the approval by MOFCOM (provincial level) will take within 30 working days in total after the approval applications are accepted by the corresponding authorities. The timeline for each scenario has included the time for consulting with the Chinese Embassies and Consulates.
The filing-oriented mechanism established under the Rules dramatically has facilitated outbound investment projects for Chinese investors. Meanwhile, the MOFCOM will execute the simplified administrative process of outbound investment projects, regardless of projects for filing or approval. These positive changes will undoubtedly be positive for resolving the conflict between domestic approval process and outbound investment schedule, and to some extent, reduce the uncertainty for outbound investment.
Nevertheless, there are still unclear issues which we wait for further guidance of MOFCOM in order to implement the new Rules completely:
a. It is unclear under the Rules that when the Chinese investors shall apply for the filing or approval of outbound investment projects to the MOFCOM.
b. There are two authorizes governing the outbound investment – MOFCOM and NDRC under the Rules and Measures. As a result, it is unclear whether the application process with MOFCOM requires the implementation of filing or approval of outbound investment by NDRC.
c. The existing regulations on foreign exchange control by State Administration of Foreign Exchange (“SAFE”) are too conservative to implement foreign exchange issues relating to the outbound investment projects.
d. The internal communication and coordination among NDRC, MOFCOM and SAFE shall be further improved to establish a complete system for the implementation of outbound investment projects, which is not mentioned in the Rules
The term “sensitive countries and regions” and “sensitive fields” under the Rules are different from those under the Measures. Under the Measures, the term “sensitive countries and regions” includes countries which have no diplomatic relations with China and the countries or regions which are under international sanctions, war or civil strife. The term “sensitive fields” includes basic telecom operation, trans-boundary water-resource development and utilization, large-scale land development, trunk transmission lines, power grids, news media and other industries.