An Update of China's Control over Outbound Investments
22 January 2018
On 26 December 2017, China’s National Development and Reform Commission (NDRC) released the Administration Measures for Outbound Investments of Enterprises (the New Rules), which will take effect on 1 March 2018 and replace the current NDRC Administration Measures for Approval and Filing of Outbound Investments (the Existing Regulations).
This legislation is another major step by the Chinese government to reframe its control over outbound investment (ODI). The implementation of the New Rules will simplify the approval and filing procedures for Chinese investors, and will also augment the regulatory framework and extend the NDRC’s regulatory authority to control ODI more closely.
The abolition of the “road-pass” regime (xiao lu tiao): Under the Existing Regulations, if the investment amount of an ODI reaches or exceeds USD300 million, the Chinese investor must obtain a confirmation letter from NDRC before entering into a binding agreement or submitting a binding offer. This requirement has been removed under the New Rules. This is likely to enhance the competitiveness of Chinese investors, particularly in where transactions are structured as competitive auctions.
The abolition of the State Council’s approval for certain investments: Under the Existing Regulations, the State Council’s approval is required if an ODI is to be made in certain countries or the ODI is in a sensitive industry and the investment amount reaches or exceeds USD2 billion. This requirement has also been removed under the New Rules. Since there is no time limit for the State Council to grant approval under the Existing Regulations, the removal of this requirement will result in an increase in deal certainty for transactions that would otherwise be subject to the approval of the State Council under the Existing Regulations.
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