Measures for the Administration of Outbound Investment

In yet another effort to stimulate China's economy and help the country recover from the worldwide financial crisis, the Ministry of Commerce (MOFCOM) has issued new rules that will in most cases streamline and speed up the approval process for Chinese companies wanting to invest overseas. By enabling companies to profitably invest some of China's huge foreign exchange reserves—i.e., U.S. dollars—abroad, the new rules will, the government hopes, bring profits back to China and, in turn, stimulate the domestic economy. According to MOFCOM estimates, the new rules will allow for 85 percent of outbound investment projects to be reviewed by the agency's provincial counterparts, rather than at MOFCOM.

MOFCOM issued the Measures for the Administration of Outbound Investment (2009 Outbound Investment Measures) on March 16, 2009. They will come into effect on May 1, 2009. The previous rules regulating outbound investment, the Provisions on Review and Approval of Outbound Investment to Establish Enterprises, which were released by MOFCOM in October 2004 (the 2004 Provisions), will be repealed on the same date.

According to Chinese government figures, overseas investments by Chinese companies grew significantly, despite the financial crisis, in 2008: Direct outbound investment rose 97 percent over the previous year, while turnover on overseas construction projects rose 39 percent in that same period, and the value of newly signed contracts rose 35 percent. The 2009 Outbound Investment Measures are designed to stimulate outbound investment by decreasing the review and approval period for most outbound investments from 15 working days to three working days. In addition, the new rules no longer require a feasibility review by MOFCOM.

Regulatory Authorities

Three government agencies share primary responsibility for the review and approval of Chinese enterprises' outbound investments: MOFCOM, the National Development and Reform Commission (NDRC) and, to a lesser extent, the State Administration of Foreign Exchange (SAFE) . MOFCOM is responsible for approving the establishment of enterprises; the NDRC is responsible for reviewing project feasibility; and SAFE is responsible for examining the source of the foreign exchange funds used for outbound investment. It has been reported that NDRC will soon release its own amended regulations, while SAFE is considering cancelling its examination of foreign exchange source for outbound investments.

Review Process

Under the 2004 Provisions, jurisdiction between MOFCOM and its subordinated provincial counterparts is allocated according to the type of Chinese enterprise making the investment. For example, the outbound investments of national enterprises (the state-owned enterprises that are directly established and led by the central government) are subject to MOFCOM's approval; the outbound investments of other Chinese enterprises are subject to the approval of MOFCOM's provincial counterparts. The 2009 Outbound Investment Measures, however, divide jurisdiction between MOFCOM and its provincial counterparts by monetary threshold or the geographical area in which the investment is being made.

Investments Subject to MOFCOM's Review

MOFCOM is responsible for approving and reviewing outbound investments as follows:

• in countries that do not have diplomatic relations with China;
• in specific countries or regions, a list of which will be determined by MOFCOM and other government departments such as the Ministry of Foreign Affairs;
• where the total amount that is being invested abroad by the Chinese enterprise is US$100 million or more;
• those that involve interests in more than one country or region; or
• investments relating to the establishment of offshore special purpose vehicles for the overseas listing of a domestic business.

Investments Subject to Provincial-Level Review

MOFCOM's provincial counterparts are responsible for approving and reviewing outbound investments as follows:

• the total amount invested by the Chinese enterprise is US$10 million or more but less than US$100 million;
• investments in the energy and mineral sector; or
• projects that need to attract other Chinese investors.

For the above investments, the review and approval process must be completed within 15 business days, provided that the application documents submitted are complete and comply with legal requirements. The commercial and technical feasibility of the investment project is not subject to MOFCOM examination; the Chinese investors shall undertake that responsibility by themselves.

Other Investments (Less Than US$10 Million)

For investments that do not meet the above criteria (i.e., that are less than US$10 million), Chinese investors are allowed by the 2009 Outbound Investment Measures simply to submit an online application form, without further documentation requirements, unless otherwise instructed, to MOFCOM (for national enterprises) or, for all others, to MOFCOM's provincial counterparts for formal review. For such relatively small investments, that review is to be completed within three working days. As a result, these relatively small investors will be the ones who most benefit from the changes wrought by the new rules.

According to MOFCOM estimates, 85 percent of outbound investment projects will qualify for expedited review.

Prohibited Investments

The 2009 Outbound Investment Measures also prohibit Chinese enterprises from investing abroad if:

• the investment impairs state sovereignty, security and/or the public interests of China, or it violates any Chinese law;
• the investment will impair the relationship between China and other countries or regions;
• the investment is likely to violate any international treaty entered into by China with another country or countries; or
• the investment involves technology or goods banned from exportation by China.