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6 Jun 2016

Brief Analysis of the Revised Draft for Comment of the Administrative Measures for Approval and Record-filing of Overseas Investment Projects

The National Development and Reform Commission (“NDRC”) published the Revisions to the Administrative Measures for Approval and Record-filing of Overseas Investment Projects (Draft for Public Comments) (“Draft”) in April 2016. If brought into force in the future, the Draft is expected to affect the NDRC’s current approval and record-filing regime for overseas investment projects in a number of ways. Below is a brief analysis of the key revisions proposed in the Draft.

Compared with the current Administrative Measures for Approval and Record-filing of Overseas Investment Projects (“Current Regulations”), and current practice of the NDRC and its local branches, the Draft mainly proposes revisions in the following aspects.

1. Cancellation of State Council Approval

The Draft cancels a provision in the Current Regulations which states: “for an overseas investment project that involves any sensitive country, region or industry and that the Chinese party’s investment reaches or exceeds US$2 billion, the NDRC shall propose comments and submit the same to the State Council for approval.”

Under the Draft, all overseas investment projects that involve sensitive countries, regions or industries will still be subject to NDRC approval, but will no longer require State Council approval, regardless of their investment amount. This revision will shorten the examination period for certain sensitive projects, such as those in the oil, natural gas and energy sectors.

2. Adjustments to the NDRC Information Reporting Requirement

The Current Regulations provide that, “with regard to an overseas acquisition or bidding project with the Chinese party's investment amount reaching or exceeding US$300 million, the investor shall, before conducting any substantive work abroad, submit a project information report to the NDRC. The NDRC shall issue a confirmation letter for projects that conform to State policy on overseas investment within seven working days upon receipt of the project information report.”

The Draft has replaced the confirmation letter issued by the NDRC with an acknowledgement letter.  Importantly, the Draft now stipulates that, while investors are still obligated to submit a project information report to the NDRC before conducting any substantive work abroad, they are not required to wait for receipt of the acknowledgement letter to start substantive work. While this revision retains the project information reporting system, it also expands the investors’ autonomy in practice. At the same time, this follows the trend of the current practice in private investment sectors, especially the practice of PE/VC industry in overseas investments, and will also help to expedite certain projects, which have strict requirements on transaction timelines, such as M&A projects targeting foreign listed companies.

3. Cancellation of the Examination Power of the NDRC Provincial Branches

According to the Current Regulations, for an overseas investment project that is subject to NDRC approval, the relevant enterprise must submit its project application report directly to the NDRC provincial branch at the place where such enterprise is located, and the relevant NDRC provincial branch then proposes comments and submits them to the NDRC.

The Draft provides that the relevant enterprise must still submit its project application report directly to the NDRC provincial branch, but the NDRC provincial branch then will submit the same to NDRC without proposing any comments. This revision further simplifies the examination procedures of projects, and will serve to improve the efficiency of the review.

4. Cancellation of the Requirement for a Financing Letter of Intent

The Current Regulations provide that, for projects subject to NDRC approval, a project application report must be submitted to the NDRC. The Draft now cancels the requirement that “a financing letter of intent issued by a bank” must be included in the attachments to the project application report, which relieves this burden from the investors’ document preparation.

5. No Specific Administrative Measures for Taiwan will be Formulated

According to the Current Regulations, “specific administrative measures shall be formulated separately with reference to these Measures for investment projects implemented in Taiwan.”

In this respect, the Draft provides that “investment projects implemented in Taiwan shall be carried out with reference to these Measures, and the NDRC and its local branches shall handle approval or record-filing procedures in consultation with the Taiwan Affairs Offices at the same level.” This will increase the flexibility of examination for projects in Taiwan.

In summary, while the Draft made mostly minor revisions to the Current Regulations, such changes should relax and simplify the requirements of the NDRC and its local branches for the approval and record-filing of overseas investment projects. However, it remains unclear when the final revisions will be promulgated and whether the final version will impose any changes on the approval and record-filing procedures of the Ministry of Commerce, its local branches or the overseas investment policies of free trade zones. 

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