On Sept. 6, 2014, the Ministry of Commerce (“MOFCOM”) promulgated the Administrative Measures for Outbound Investment (“2014 MOFCOM Measures”), replacing the original Administrative Measures for Outbound Investment that was in effect since March 2009 (“2009 MOFCOM Measures”). These measures are a meaningful step in facilitating outbound investment by Chinese companies consistent with China’s “Go Out Policy” and goal of adopting international standards for investment procedures.
MOFCOM and the National Development and Reform Commission (“NDRC”) are the two main government agencies that regulate outbound investments by Chinese companies. NDRC authorization is a pre-requisite for the approvals required from MOFCOM.
On April 8, 2014, the NDRC issued the Administrative Measures for the Verification and Approval and Filing of Outbound Investment Projects (“2014 NDRC Measures”), which took effect on May 8, 2014 (see our client advisory on this topic here). In response to the 2014 NDRC Measures, the MOFCOM issued the 2014 MOFCOM Measures, which greatly narrow the scope of projects subject to the MOFCOM’s approval, make filing procedures available for the projects that do not involve sensitive countries or industries, and shorten the timeline for the approval process.
Below are the primary changes in the 2014 MOFCOM Measures.
Approval vs. filing
Under the 2009 MOFCOM Measures, all the outbound investment projects that involved establishing entities or acquiring ownership or a right to control or manage entities outside of China were subject to approval of the MOFCOM or a MOFCOM provincial office. The 2014 MOFCOM Measures greatly narrow the scope of the projects subject to approval. As a result, projects with an investment amount of USD 10 million or more and projects involving establishment of special purpose vehicles are no longer required to be approved. Instead, they need only be filed with the MOFCOM or its provincial offices.
The filing process is simpler and faster than the approval process. Filing requires fewer application documents than approval. The processing time for approval is 20-30 working days (discussed below), while filing can be completed within three working days.
Under the new rules, only outbound investment projects involving sensitive countries/regions or sensitive industries are required to be approved by the MOFCOM or its provincial offices. All other projects need only be filed with the MOFCOM or its provincial offices, regardless of the investment size.
According to the 2014 MOFCOM Measures, sensitive countries and regions are (i) countries that have no diplomatic relations with China, and (ii) countries subject to sanctions of the United Nations. Sensitive industries are any industries that (i) involve products and technologies restricted from export from China, or (ii) have an impact on the interests of more than one country or region.
Projects invested by “central government-owned enterprises” are to be approved by or filed with the central MOFCOM, and projects invested by “local government-owned enterprises” are to be approved by or filed with the provincial offices of MOFCOM. Pursuant to the 2014 MOFCOM Measures, “central government-owned enterprises” refer to (i) enterprises whose capital is contributed or managed by the national Assets Supervision and Administration Commission and affiliates of the those enterprises, and (ii) other enterprises managed by the central government. The rules do not define “local enterprises.”
The 2014 MOFCOM Measures shorten the timeline for the approval process in those circumstances where approval is still required. Under the existing rules, it took at least 30 working days to obtain an approval from MOFCOM and 40 working days from the provincial offices of MOFCOM. Under the new rules, it only takes 20 working days for MOFCOM approval and 30 working days for approval from MOFCOM provincial offices.
Filing will be completed within three working days of receipt of the filing application.
In the past, delays and uncertainty for both approvals and filings often presented a serious obstacle to Chinese companies’ ability to compete effectively on bids or to close transactions. The definite timelines provide more certainty for the processing time for the MOFCOM approval and filing procedures. The shortened processing time for approvals certainly is welcomed by both Chinese investors and companies being acquired.
Following the 2014 NDRC Measures which were promulgated five months ago, MOFCOM issued the 2014 MOFCOM Measures with the intent to further liberalize outbound investments. Both Measures are expected to make the administration of outbound investment simpler and faster. However, how the rules will be implemented is not yet clear.