China eases restrictions on outbound investments

China eases restrictions on outbound investments

China eases restrictions on outbound investments

30.04.2014 BE law

China relaxes the governmental approvals required for outbound projects by Chinese entities, thereby taking an important step in further facilitating outbound investments.

On 2 December 2013, the State Council of China had issued its new Catalogue of Investment Projects Subject to Governmental Verifications 2013 (2013 Catalogue), which became effective on the same day. Amongst other things, the 2013 Catalogue simplifies the verification and registration procedure for outbound investments by Chinese entities, with the stated purpose of reducing and decentralizing the verification and registration power and enhancing enterprises’ autonomy on outbound investments.

In particular, the new 2013 Catalogue had announced that only investments exceeding USD 1 billion or involving sensitive countries and regions or sensitive industries would require verification (i.e., approval) by the National Development and Reform Commission of China (NDRC). Other outbound investments would only be subject to registration (i.e., filing) procedures.

The NDRC has now issued the relevant implementation rules for the 2013 Catalogue in the aptly-named Administrative Measures for Verification and Registration of Overseas Investment Projects (Order 9)1, which will come into effect on 8 May 2014.

In this newsletter, we discuss the changes brought about by Order 9 and consider their likely impact on China’s overseas investments.


Typically, a Chinese company seeking to invest overseas has to obtain the prior approval from at least three governmental authorities:

the National Development and Reform Commission (NDRC);
the Ministry of Commerce (MOFCOM); and
the State Administration of Foreign Exchange (SAFE).

Such approvals have to be obtained either at central or at provincial level, depending on the investment amount, the industry of the investment, and the type of entity that is seeking the approval.

Furthermore, State-owned enterprises (SOEs) require approval from the State-Owned Assets Supervision and Administration Commission (SASAC), and additional specific approvals may be required for projects in certain industries (such as the financial industry).

The 2013 Catalogue

The 2013 Catalogue announced in general terms that verification by the NDRC would only be required for outbound investments exceeding USD 1 billion or involving sensitive countries and regions or sensitive industries. Furthermore, registration requirements by the NDRC would apply in respect of investments exceeding USD 300 million or made by Centrally-administered State-owned enterprises (CASOEs). The MOFCOM approval requirements were also announced to be loosened.

As the 2013 Catalogue only sets out general principles, its implementation into practice requires the promulgation of administrative implementation measures by the relevant authorities, i.e. NDRC and MOFCOM.

On 8 April 2014, NDRC has issued its implementing administrative measure (Order 9), which implements the general principles of the 2013 Catalogue into NDRC’s practice. Order 9 is discussed below.

Separately, on 16 April 2014 MOFCOM has announced its draft amendment of Administrative Measures for Overseas Investment (Order 5)2, which suggests that MOFCOM’s implementation measures will be even more far-reaching than those set out in NDRC’s Order 9.

The NDRC implementation rules

NDRC’s Order 9 sets out a new verification and registration regime for Chinese companies’ outbound investments, which eases the former NDRC approval procedures.

In particular, pursuant to Order 9:

  • Outbound investment projects with investments over USD 1 billion by a Chinese entity are subject to verification by the state-level NDRC;
  • Outbound investment projects by a Chinese entity involving sensitive countries and regions or sensitive industries are subject to verification by the state-level NDRC;
  • Outbound investment projects by CASOEs or those carried out by local enterprises in excess of USD 300 million are subject to registration with the state-level NDRC; and
  • Outbound investment projects by local enterprises of less than USD 300 million are subject to registration with NDRC’s provincial counterparts.

Formerly, only investments by CASOEs below USD 10 million that did not involve sensitive countries and regions or sensitive industries were allowed to proceed subject only to filing with the state-level NDRC.

Order 9 also introduces new definitions of “investment amount by Chinese entities”, “sensitive countries and regions” and “sensitive industries”

  • “investment amount by Chinese entities” is now defined as “the aggregated sum of money, securities, in kind contributions, intellectual property rights or technology, equity, debt and guaranteed amounts invested by Chinese entities for their outbound investment”;
  • “sensitive countries and regions” are defined as to include “countries and regions which China does not have diplomatic relationship with, or are under international sanction, or embroiled in ongoing war or riots”; and
  • “sensitive industries” include “basic telecommunication operations, cross-border water resources development and utilization, large-scale land development, transmission lines, power grids, and news and media, etc.”

Finally, it should be noted that the very largest outbound investment projects are subject to a separate regulatory framework involving an approval at the very highest level of the PRC’s administration. Indeed, outbound investment projects by Chinese entities in excess of USD 2 billion and involve sensitive countries and regions or sensitive industries, are to be verified by the State Council (the highest PRC administrative body) after having obtained a verification opinion from the NDRC. Whilst this represents a higher threshold than under the current rules, this more rigorous rule for the most gargantuan headline-grabbing outbound investments seems to indicate that the PRC continues to wake over the wider implications of its enterprises overseas’ activities.

Verification and registration criteria

Order 9 lists the following criteria for the NDRC to consider when deciding to verify an application for a proposed outbound investments:

  • the proposed outbound investment is in compliance with national laws, regulations, industrial policies and overseas investment policies;
  • it is in compliance with the principles of win-win, mutual benefit and co-development, not endangering national sovereignty, security and public interest, and not in violation of international treaties to which China is a party;
  • it is in compliance with the relevant regulations on foreign exchange; and
  • the investors must have appropriate investment capability.

Similarly, outbound investments only requiring registration are assessed on the basis of the following criteria:

  • the proposed outbound investment is within the scope of registration;
  • it is in compliance with national laws, regulations, industrial policies and overseas investment policies;
  • it is not endangering national sovereignty, security and public interest;
  • it is in compliance with the relevant regulations on capital projects; and
  • the investors must have appropriate investment capability.

Both sets of criteria are in line with current practice. As the reader will note, they continue to allow for a fairly broad element of regulatory discretion, which has led commentators to speculate on the true intentions of the regulatory changes.

The NDRC’s provincial counterparts are still to release their own set of registration criteria; these are to be broadly similar to the national criteria as listed above.


Order 9 sets outs mandatory procedures time periods for the filing and processing of verification and registration applications. Broadly, decisions with respect to registration applications are to be made within seven working days, and decisions with respect to verification applications within 20 working days (which can be extended by another 10 working days).

The NDRC will issue a written decision if the application for verification or registration is rejected. A refusal to grant verification or registration can be appealed against by way of administrative review or administrative litigation.

The Project Information Report System

From an external viewpoint, a particularity of the Chinese governmental approval system for outbound investments is that Chinese entities contemplating to invest overseas through competitive biddings or acquisitions, must be pre-approved by the NDRC before embarking in any substantive work. Historically, this so-called “road pass regime” aimed at ensuring that several Chinese enterprises would not be found out bidding each other for the same overseas asset (and thereby ultimately be spending ‘Chinese money’ to no avail); however in the recent past there have been some instances of multiple Chinese enterprises having been granted a “road pass” for the same project, which has alleviated certain fears that only one Chinese entity would be allowed to bid for any overseas project.

The road pass regime has generally been maintained, but the triggering threshold has been increased to USD 300 million from the current USD 100 million. This has led some market watchers to speculate whether the higher threshold will entice the NDRC to return to a more exclusive policy in handing out road passes for major outbound transactions.

Assessment and conclusion

NDRC’s implementation measures of the 2013 Catalogue clearly go a long way in enhancing Chinese enterprises’ competitiveness in outbound transactions and therefore in further bringing into practice the PRC government’s “go out” policy.

Indeed, Chinese companies have historically been at a competitive disadvantage with their foreign peers when competing for overseas assets: their having to obtain domestic governmental authorisation(s) hinders their ability to swiftly execute transactions, which often causes sellers and targets to opt for a suitor with less execution risk. To counter their competitive disadvantage caused by such contingencies, Chinese companies have often opted to offer what has colloquially become known as a ‘China premium’, i.e. a higher valuation in order to offset regulatory and other contingencies against the lurk of a higher price.

The softening of Chinese domestic governmental authorisations and approval requirements is therefore expected to contribute to creating a more level playing field between Chinese bidders and their foreign competitors.

However, the relaxation of the rules is by no means a panacea and we do not expect it to result in a sudden opening of the floodgates for Chinese money wishing to invest overseas: there remains an important element of regulatory discretion on the part of NDRC for approving (and even for accepting the registration process of) contemplated outbound transactions that are perceived as not being compatible with China’s interests, MOFCOM’s approval requirements are expected to be eased along the lines of what has been discussed in this newsletter but will not be entirely abolished, and several other impediments to outbound investments (such as foreign exchange restrictions) will also remain unamended for the time being.

All in all, however, the PRC’s new policies on outbound investments are a welcome development and can be expected to provide a further boost to the already impressive list of Chinese outbound activity.


  1. The new Order 9 replaces the previous Provisional Administrative Measures for Verification and Approval of Overseas Investment Projects (Order 21) issued on 9 October 2004. A full text of Order 9 can be found on the NDRC’s website: (in Chinese only).
  2. A full text of the announcement and draft amendment can be found on the MOFCOM’s website: (in Chinese only); according to the current draft only outbound investments into sensitive countries and regions or sensitive industries will be subject to MOFCOM approval, without any monetary thresholds or limits.

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