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19 April 2018
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China clarifies administrative measures for enterprises looking to invest overseas

Chinese enterprises looking to extend their influence to new countries must now comply with new administrative measures.

The National Development and Reform Commission (NDRC) issued Order No 11 looking at measures on the administration of enterprises with overseas investment on 26 December 2017, introducing four major changes to the previous process covered by Order No 9 from 2014. The new measures consist of six chapters and 66 rules, and extends supervision of the project beyond approval and filing to cover during and after the event, too.

The new measures introduce four major changes:

  • The types of investment entity are broadened
  • More clarification is provided on investment behaviour and investment activities
  • The scope and effectiveness of supervision, approval and filing is adjusted, as well as the conditions of changes and delays of approved projects
  • The examination and approval of foreign investment is also adjusted

The measures were published on 26 December 2017 and took effect on 1 March 2018.

Order No 11 effectively cancels the “Little Road Bar” introduced by Order No 9 in April 2014. That directive required Chinese overseas investors who were investing, through overseas M&A or bidding, more than US$300 million or more to submit project information to the NDRC before undertaking substantive work outside of China. 

More organisations covered in new measures

While the 2014 measures only applied to overseas investments made by domestic legal persons, the new measures cover all domestic organisations and certain overseas organisations. This includes broadening the definition of domestic enterprises and non-enterprise organisations to include partnerships and sole proprietorships, public institutions and social organisations. Overseas, Hong Kong, Macao and Taiwanese enterprises controlled by domestic enterprises or dometic natural persons are also now in scope for the measures.

Order No 11’s measures also bring more investment activities under the administrative umbrella, including acquiring rights and interests in overseas land, natural resources and infrastructure. Establishing new overseas enterprises or equity investment funds, or investing or injecting capital into existing ones, are also covered.

In other words, all domestic enterprises will be affected by these new measures. Previously, only domestic legal entities were able to transact foreign investments, and overseas reinvestment by a domestic enterprise through its direct investment was not within the scope of supervision but now needs to be recorded by the relevant regulatory authorities.

A matter of simplification?

To a certain extent, the measures simplify the process of examination and approval. Order No 11 improves the transparency of regulatory processes and efficiency of regulatory supervision whilst encouraging domestic investors to invest overseas. It reduces the time and cost needed to enhance transaction certainty.

The deadline to complete the relevant formalities and compliance needs is extended so that domestic investors can complete relevant approval, filing or reporting “before the implementation of the project”, instead of the previous “before the transaction agreement takes effect”, bringing China’s regulation in line with international market practice.

Investors need to re-confirm the examination and approval conditions defined in the new measures, and to consider updating internal processes to optimise the procedures for applying for overseas investment.

TMF China helps customers identify the types of investment entities, the categories of investment projects and implement the whole ODI filing procedure (including NRDC, MOFCOM and SAFE), on your behalf.

Get in touch with our China experts to see how they can help save time and cost in your international investment.