New Chinese rules set to ease controls on overseas investment

Out-Law News | 10 Sep 2014 | 11:15 am | 2 min. read

New measures to ease controls on overseas investment by domestic companies have been announced by China’s commerce ministry (MOC).

According to the state-run Xinhua News Agency the new rules, which come into effect on 6 October this year, will mean “only overseas investment projects in sensitive countries or regions, as well as in sensitive industries, will require approval by the MOC”.

Sensitive countries or regions include countries “that have not established diplomatic ties with China” and those nations subject to United Nations’ sanctions, Xinhua said. However, “other overseas investment projects only need to register with the MOC”.

Previously, any overseas investment project worth more than $100 million has required the MOC’s approval. Overseas investment in energy and mining, or projects between $10m and $100m, also required the approval of “provincial commerce departments”, Xinhua said.

Overseas investment by industries under China's export restriction policies, or those projects affecting more than one foreign country's interests, are also subject to MOC approval.

China’s National Development and Reform Commission (NDRC) also has the power to approve or veto overseas investments, Xinhua said. However, according to measures unveiled by the NDRC in April, any overseas investment project larger than $1 billion must be approved by the NDRC and investment above $2bn must be approved by China’s State Council, or cabinet. In addition, overseas investment projects in sensitive countries or regions, as well as in sensitive industries, will also require approval by the NDRC. Chinese companies planning to invest less than $1 billion overseas “will only need to register with authorities rather than get approvals from the NDRC”.

MOC figures indicate that China invested a total of $52.55bn in non-financial companies in 149 countries or regions during the first seven months of 2014, according to Xinhua's report.

The relaxation of overseas investment rules comes amid a roll-out of economic reforms. In November 2013, China unveiled a master plan to actively develop a mixed ownership economy and allow an increased number of state-owned enterprises and other firms to develop into mixed-ownership companies. The document, issued by the Communist Party of China Central Committee, also acknowledged the role of the private sector in promoting growth and job creation, and pledged to let the market play a decisive role in the development of China's economy.

Shanghai-based corporate law expert Dr. Bernd-Uwe Stucken of Pinsent Masons, the law firm behind Out-Law.com, said:  "Introducing the Measures is an important development towards China's goal to liberalise financial flows and encourage Chinese companies to invest more outside of China, particularly given the challenges they face in terms of obtaining government approval. The Measures substantially reduce the regulatory hurdles for Chinese companies' outbound investment activities."

Also this year, China announced that private investors would have the opportunity to invest in 80 major public infrastructure projects which had been announced by the government. Private-sector investment in China in 2013 accounted for 63% of China's total capital investment, according to the government.

According to analysis published in July 2014 by the research consultancy and advisory firm the Rhodium Group, China’s economic reform programme “is beginning to impact the country’s global investment profile, with the changes also felt in the US”. Chinese interest in US assets “continues to be strong, but the industry focus is shifting towards real estate, advanced services and manufacturing”, Rhodium said.

Rhodium said: “Chinese companies spent $2.1bn in the second quarter (of 2014) on investments in the US, and more than $10bn worth of deals are currently pending. Notable is the recent increase in greenfield investments and growing average capital expenditures for such projects.”

China’s ongoing reforms follow calls by international institutions such as the World Bank, which said last June that promoting competition, eliminating entry barriers in select sectors, and reducing administrative burden on businesses, can help boost the country’s growth.