Mergers and Acquisitions Alert: New regulations to streamline Chinese investment
by Michael Hansel and Christopher Hewitt
China’s National Development and Reform Commission (NDRC) is expected to shortly release new regulations governing the way in which it assesses and approves investment projects. The new regulations will supersede the NDRC’s current investment regulations, and will benefit those involved in inbound and outbound Chinese investment projects by streamlining and clarifying the approvals process. Once the regulations are introduced, companies investing into China and undertaking transactions with Chinese companies will need to take the new procedures into account during negotiations and transactions. Here, partner Michael Hansel and solicitor Christopher Hewitt explain the proposed changes.
What the new regulations mean for inbound and outbound investors
- The new regulations, if and when they are introduced, will reinforce and strengthen the NDRC’s role in overseeing inbound foreign investment projects in China. Two increasingly popular foreign investment vehicles, foreign-invested enterprises and foreign-invested partnerships, will come within the scope of the NDRC.
- The responsibility of the provincial NDRC offices in verifying and approving smaller inbound and outbound investment projects will be increased.
- The regulations also herald a new era of public participation in the NDRC’s economic and investment processes, with public and social impacts directly considered in the assessment process.
Key changes affecting inbound investment projects
- Inbound investment into China using foreign-invested enterprises and foreign-invested partnerships will require NDRC approval. At the moment, most investments using these vehicles do not require NDRC approval.
- Foreign investments into China using Chinese currency will now be subject to NDRC regulations and approval.
- Large foreign investment projects (‘encouraged’ or ‘permitted’ projects of US$500 million or more, and ‘restricted’ projects of US$100 million or more) may be assessed and verified by the NDRC without requiring State Council verification.
- In a move that will increase efficiency for many, smaller foreign investment projects (‘encouraged’ or ‘permitted’ projects of US$300 million or less, and ‘restricted’ projects of US$50 million or less) may be approved by provincial NDRC offices without national NDRC approval.
- Verification and approval for foreign investments in the financial sector will be the responsibility of the regulatory bodies for securities, banking and insurance, rather than the NDRC.
- Applications for foreign investment projects will need to include a breakdown of the project’s anticipated impact on policy and planning, the economy, industry, the environment, energy conservation and society.
- The NDRC will now be expected to seek public comment for foreign investment projects which may have a material public interest.
Key changes affecting outbound investment projects
- If a Chinese company undertakes foreign investment through an overseas subsidiary, it will no longer require NDRC approval if it does not provide funding or financial guarantees.
- The verification and approval of certain outbound investment by Chinese companies will be delegated to provincial NDRC offices. The outbound investment thresholds for approvals are significantly higher for resources development, transportation and infrastructure outbound investments.
- The procedures for overseas bids and acquisitions by Chinese companies will be simplified, including removing the requirements for a NDRC confirmation letter in order to, among other things, execute binding agreements and submit a bid over a target company.
- Other regulatory procedures will be simplified and streamlined, including eliminating the requirement for NDRC approval for the transfer of an overseas investment project that has previously been subject to NDRC or State Council approval. Under the new regulations, the terms of the transaction will only need to be reported to the NDRC within 10 days of the completion of the transfer.
The new regulations signify a stronger commitment by the Government of China, and NDRC in particular, to providing greater certainty in the inbound and outbound investment process. These initial streamlining measures are an important step towards a simpler investment approval system for Australians investing into China, and Chinese investing into Australia.
For more information on investing in Chinese projects, please contact HopgoodGanim.