Outbound Investments from China – the Chinese Domestic Requirements

by Dechert LLP

Chinese investments abroad have increased significantly in the past decade. Chinese enterprises (both private enterprises and state-owned enterprises, or SOEs) are heeding the Chinese government’s “venture out” (or zouchuqu) policy and venturing out of China. China's Ministry of Commerce (MOFCOM) said that the country's outward foreign direct investment will reach US$150 billion by 2015, representing an annual increase of 17% for each year in its 12th five-year plan (2011-2015). According to the United Nations Conference on Trade and Development, from almost no outbound foreign direct investment in 1979 (the initial year of China’s open door policy) to the end of 2010, China had accumulated around US$298 billion of outward foreign direct investment stock overseas. These figures demonstrate that China is eager for a larger share of the global market, acquiring means of access to local expertise, cutting-edge technologies, and building a global brand.

Foreign sellers dealing with Chinese buyers would want to understand what the Chinese government approval requirements are for a potential Chinese buyer, and would be well-advised to check that a potential Chinese buyer has obtained these approvals or is in the process of doing so. This DechertOnPoint will focus on the current Chinese domestic requirements for an outbound investment by a Chinese company in the non-financial industry. Different requirements will apply in respect of outbound investments in the financial industry.

There are three key government authorities in China responsible for reviewing and approving outbound investments of Chinese enterprises.

I. National Development and Reform Commission (NDRC)

In the context of outbound investments of Chinese enterprises, the NDRC or its local office1 oversees the specific projects involved, focusing on examining their compliance with China’s law and policies. Obtaining the NDRC’s approval is a crucial step in the overall examination and approval process of PRC authorities, as the NDRC’s approval letter is a key document to be presented to other PRC authorities in the following steps, details of which are illustrated below.

The NDRC and its local offices are in charge of reviewing different projects depending on their nature and investment amounts. Generally, a review by the local office of the NDRC is quicker than the one by the NDRC. An important change in 2011 is that the local offices of the NDRC have been granted broader authority to review projects2, which significantly relaxed the prerequisites for approval of outbound investments. Following such change, the responsibilities of the NDRC and its local offices are split as follows:

  1. In general, the following two types of projects are subject to the approval of the NDRC:
    • Investments exceeding US$300 million in resource-based sectors, and
    • Investments exceeding US$100 million in non-resource sectors.
  2. Investments below the above thresholds are under the purview of the local office of the NDRC.
  3. SOEs under the supervision of the central government have some discretion in making outbound investments. For outbound investments below US$300 million in resource-based sectors or below US$100 million in non-resource sectors, SOEs need to file with the NDRC only. But SOEs’ investments of more than US$300 million in resource-based sectors or more than US$100 million in non-resource sectors still require approval by the NDRC.
  4. Three types of projects, described as “special projects” specifically listed below, are subject to a particular examination process regardless of their investment amounts and resource-related nature. According to the rules, the NDRC’s local office first conducts a preliminary review and submits it to the NDRC for its approval; thereafter, the NDRC will review and determine whether to approve or, if necessary, submit it to the State Council for its final approval3.
    • Investments in countries or areas that do not have formal diplomatic relationships with China;
    • Investments in countries under international sanctions, at war or in a state of unrest; or
    • Investments in an industry of sensitive nature such as telecommunication infrastructure and operation, development and utilization of cross-border water resources, large-scale land development, main power grid and news media.

Generally, an application to the NDRC has to meet the following requirements:

  1. The investment abides by the laws and regulations of China and its industrial policies, does no harm to the sovereignty, safety and public interests of China and does not violate international laws;
  2. The investment complies with the demands of sustainable development of the economy and society and is helpful to the development of strategic resources required for developing the national economy. The investment promotes the export of technology, products, equipments and labour services with the comparative predominance and absorbs advanced foreign technology;
  3. The investment complies with the administrative prescriptions of national capital projects and the foreign loans; and
  4. The investors possess the necessary investment strength.

A pre-report procedure with the NDRC is required prior to the formal NDRC review process. Any Chinese enterprise, prior to initiating any substantial activities, including executing binding agreements, tendering binding offers, applying to the foreign government authorities and launching official bids, is required to submit to the NDRC a report containing the project information and must obtain a confirmation letter from the NDRC.

The formal NDRC review is a substantive review. For a project subject to the approval of the NDRC, the local office of the NDRC is required to conduct the preliminary review and submit it to the NDRC for its review and approval. The NDRC has a 20-business day period to complete the review, with the authority to extend the review time. If the NDRC determines that consultation or assessment is necessary to resolve major issues, the NDRC will designate certain institution(s) to provide an assessment report. The time for such consultation or assessment is not counted into the review time, and therefore, the process could be longer. In practice, the process could be much longer than 20 business days, depending on various factors such as prevailing policies and the complexity of the transaction, etc.

II. Ministry of Commerce (MOFCOM)

MOFCOM supervises the establishment of enterprises outside of China involved in outbound investments, focusing on reviewing major agreements, contracts and documents (e.g. articles of association of the enterprises to be established). MOFCOM’s approval is also very important; upon its approval, it will issue a Certificate of Enterprises’ Outbound Investment to the applicant.

Like the NDRC, MOFCOM and its local offices4 are responsible for different types of projects depending on various factors. In 2009, the revised MOFCOM’s rules5 simplified the approval process and review standards by requiring fewer transactions to obtain central level MOFCOM approvals. According to these rules, the following investments require the approval of MOFCOM:

  1. Investments made in countries without diplomatic relationships with China;
  2. Investments made in certain countries which MOFCOM and the Ministry of Foreign Affairs of the PRC jointly determine must be reviewed by MOFCOM6;
  3. Investments exceeding US$100 million;
  4. Investments involving interests in more than one country or region; or
  5. Investments involving establishment of overseas special purpose vehicles.

The following investments are subject to the approval of the local offices of MOFCOM:

  1. The investment is between US$10 million and US$100 million;
  2. The investment is in the minerals or energy sector; or
  3. The investment involves soliciting other domestic investors/merchants to trade commodities outside of the PRC.

As a general rule, MOFCOM will reject an overseas investment under any of the following four circumstances:

  1. The investment will endanger the sovereignty, national security or public interests of China, or violate a law or regulation of China;
  2. The investment will prejudice the relationship between China and the country or region to be invested in;
  3. The investment will likely violate any international treaty concluded by China with a foreign party; or
  4. The investment involves exporting any technology or goods prohibited by China.

Like the NDRC, MOFCOM’s review is also a substantive review. If the approval of MOFCOM is required, the local MOFCOM offices have to finish the preliminary review in no more than ten business days and submit its preliminary review results to central MOFCOM for its final review. MOFCOM should complete its review within 15 business days after its official acceptance of the application documents, although MOFCOM is entitled to take additional time. In sum, it may take one to two months on average to complete MOFCOM’s review.

III. State Administration of Foreign Exchange (SAFE)

SAFE is the authority responsible for regulating China’s foreign exchange. Following the approval by the NDRC and MOFCOM, certain applications with the SAFE or its local offices in connection with remitting the funds and obtaining a Foreign Exchange Registration Certificate of Outbound Direct Investment must be completed. In the past, this step was a substantive “approval” as well, but today, it is closer to a registration requirement. It is relatively straightforward and should take between two weeks and one month to complete.

IV Other Approvals

The above illustrations do not cover all the regulatory approval and registration requirements in the PRC for an outbound investment made by Chinese enterprises. For example, if the Chinese enterprise is a SOE, the approval of or the registration with the State Asset Supervision and Administration Committee (SASAC) or its local office needs to be obtained as well. Acquisitions in the financial industry also require the approval of other banking and financial regulators.

Relaxed Requirements for China to “Venture Out”

The relaxed requirements described in this DechertOnPoint have encouraged Chinese companies to make more investments overseas. In 2012, more relaxations were proposed under the draft “Administrative Measures for the Examination and Approval of Overseas Investment Projects”, which are yet to come into force. Therefore, it is likely that overseas investment from China will continue to increase under these easier requirements. As a concluding remark, when making outbound investments, Chinese investors should also consider tax and anti-monopoly issues, which are not covered in this DechertOnPoint, and restrictions in the target jurisdictions, such as the United States, which will be covered in another DechertOnPoint.


1 Local offices of the NDRC include its offices of the NDRC at the level of provinces, autonomous regions, municipalities and specific cities such as Beijing and Shanghai.

2 In line with China's stated policy of encouraging outbound investments, the NDRC issued the “Circular of the National Development and Reform Commission on Properly Handling the Delegation of Approval Authority over Outbound Investment Projects to Lower-level Authorities” (the Circular) on 14 February 2011. The Circular also applies to investments in Hong Kong and Macau.

3 To identify if any project under review of the local office of the NDRC falls under such category, the local office of the NDRC is required, prior to the issuance of its approval, to file its approval letter with the NDRC, for the following two types of projects: (1) investments ranging from US$30 million to US$300 million in resource-based sectors, and (2) investments ranging from US$10 million to US$100 million in non-resource sectors.

4 Local offices of MOFCOM include its offices of MOFCOM at the level of provinces, autonomous regions, municipalities and certain specific cities such as Beijing and Shanghai.

5 On 16 March 2009, MOFCOM released the “Measures on Administration of Outbound Investment” (the Measures), replacing the 2004 MOFCOM rules.

6 The list has not yet been released. It is expected that the list will be made up mainly of countries without diplomatic relationships with China or with political sensitivity.


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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