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New Guidelines on Outbound Investments
来源:AnJie Law Firm | 作者:肯萨公司事务部 | 发布时间: 2885天前 | 443 次浏览 | 分享到:
On 18 August 2017, the State Council released a Guidelines on Further Guiding and Regulating Outbound Investments (the "Guidelines"), which was jointly promulgated by NDRC, MOFCOM, PBOC and he Ministry of Foreign Affairs("MFA"). The Guidelines provides an explicit macroscopic guidance on Chinese enterprises outbound investments.
Along with overcapacity and slowdown of economic growth in China's domestic market, outbound investment by Chinese enterprises grows rapidly in recent years. Year 2016 witnessed Chinese outbound investment reaching USD170.11 billion with ten years consecutive growth. However, much of the outbound investment have been made in such industries like real estate, film studios, sports and etc., which do not promote development of China's domestic economy. Such investment also caused substantial outflows of Chinese capital, which may affect China's national financial security.

In November 2016, National Development and Reform Commission ("NDRC"), the Ministry of Commerce ("MOFCOM"), the People's Bank of China ("PBOC") and the State Administration of Foreign Exchange ("SAFE") called for strengthening verification of the authenticity of outbound investment, aiming to guide outbound investments to rational, orderly and healthy development.  On 18 August 2017, the State Council released a Guidelines on Further Guiding and Regulating Outbound Investments (the "Guidelines"), which was jointly promulgated by NDRC, MOFCOM, PBOC and he Ministry of Foreign Affairs("MFA").  The Guidelines provides an explicit macroscopic guidance on Chinese enterprises outbound investments.

1Categories of Industries Guidance for Outbound Investment


The Guidelines, adopting an approach similar to category of industries guidance for foreign investment, classifies Chinese outbound investment into three categories, i.e., encouraged, restricted and prohibited. No such industries guidance existed for outbound investment before release of the Guidelines.


1. Encouraged Outbound Investments


The following are listed in the Guidelines as encouraged outbound investments:


(A) Infrastructure that are conducive to the Belt and Road Initiatives and related infrastructure and interconnection.


(B) Outbound investments that drive the export of quality production capacity, high-quality equipment and technical standards.


(C) Cooperation with overseas high-tech and advanced manufacturing enterprises and set-up of R&D centers.


(D) Exploration and development of oil and gas, mineral and other energy resources based on prudent assessment of economic benefits.


(E) The mutual beneficiary and win-win investment cooperation in respect of agriculture, forestry, animal husbandry and sideline fishing and etc.


(F) Outbound investments in trade, culture, logistics and other service sectors, and overseas branches and service networks of qualified financial institutions.


The above are encouraged for the purposes of promoting the Belt and Road Initiatives, deepening international production capacity cooperation, improving export of domestic quality production capacity, high-quality equipment and applicable technology, enhancing China's technology research and development and manufacturing capacity, supplying for China's demand of energy and resources, and upgrading China's related industries.


We understand that the encouraged investments should still be subject to the procedures of approval or record-filing. According to the Administrative Measures for the Verification and Approval and Record-Filing of Overseas Investment Projects (Revised on December 27, 2014), outbound investment is subject to NDRC approval and record-filing as follows:


-Outbound investment projects in sensitive countries and regions or sensitive industries shall, regardless of the investment amount, all be subject to the verification and approval by the NDRC. Specifically, where such investment by Chinese side amounts to USD 2 billion or higher, NDRC shall put forward review opinions thereon, and submit the same to the State Council for approval;


-Other outbound investment projects shall be managed by record-filing. Specifically, investments by enterprises supervised by central government, or investments of or exceeding USD 300 million by local enterprises shall be subject to the record-filing by the NDRC. Investment less than USD 300 million by local enterprises shall be subject to the record-filing by local counterparty of NDRC at provincial level.


We believe that the approval or record-filing procedures for encouraged outbound investment will be given priority and will receive more policy support, including financing support from financial institutions.


2. Restricted Outbound Investments


The Guidelines provides that outbound investments which do not conform to the diplomatic policies of China's peaceful development, mutual benefit and win-win opening strategy and macro-control policies will be restricted.  Such restricted investments include:


(A) Investments in countries which do not have diplomatic relationship with China, or are in war, or are sensitive according to the bilateral or multilateral treaties or agreements concluded by Chinese government.


(B) Investments in the industries of real estate, hotels, film studios, entertainment, sports clubs and etc.


(C) Private equity funds or investment platforms without specific industrial projects.


A large amount of Chinese capital flows into industries of real estate, hotels, film studios, entertainment and football clubs, and much of them were made through equity investment funds or investment platforms in and before 2016. Such investments, contradictory to China's strategy, are suspicious of capital transfer and therefore are considered as irrational investment by Chinese government.


The above mentioned restricted outbound investments are subject to the approval of the overseas investment authorities, that is, NDRC and MOFCOM. The department in charge of outbound investment will examine such investment on a case by case basis according to the specific situation of each investment projects. Specific criteria needs to be further clarified by NDRC and MOFCOM. Under the current circumstance, we understand that it will be very difficult to get approval for the outbound investment in the above restricted category.


3. Prohibited Outbound Investments


Outbound investment in the following are prohibited in the Guidelines:


(A) Investments involving export of core military industrial technology and products without the approval of the Chinese government.


(B) Investments involving export of technology, crafts and products that are prohibited from export.


(C) Investments in gambling, pornographic industries and so on.


(D) Overseas investments that are prohibited by international treaties concluded or acceded to by China.


(E) Other investments that endanger or may endanger national interests and national security.


This is the first time that Chinese government sets up category of prohibited outbound investments. Among the prohibited list, national interests and national security is a catch-all provision, which needs to be further clarified in the future practice by the competent government departments.


2 Other Regulatory Measures on Outbound Investment


In addition to the category of industries guidance, the Guidelines also provides for some other measures for outbound investment by Chinese enterprises:


1. Authenticity Review


The Guidelines reaffirm to strengthen the authenticity and compliance review of Chinese enterprises' outbound investments to prevent capital transfer by unreal investment. This was first introduced by outbound investment authorities after the amount of outbound investment rose sharply last year.  It is also one of the key facts to be reviewed by the outbound investment authorities.


2. Blacklist


The Guidelines establishes a blacklist for outbound investments to punish non-compliant outbound investments.  This measure would effectively curb Chinese enterprises outbound investment "chaos" and prevent illegal capital outflows in the name of outbound investments.


3. Audit of SOE's Outbound Investment


The Guidelines propose to improve the audit of state - owned enterprises' outbound investment to safeguard state-owned assets. The audit requirement was first introduced by State-owned Assets Supervision and Administration Commission, which is applicable only to key outbound investment projects made by SOE supervised by central government.  The audit covers project decision-making, investment direction, utilization of fund, investment profits, investment risk management and etc. The Guidelines expand outbound investment audits to all state-owned enterprises and to all outbound investment projects.


3Outlook


The Guidelines is significant to healthy development of outbound investment, by eliminating the market concerns about Chinese government limiting outbound investment, clarifying the direction of overseas investment, and improving the regulation of outbound investment.  The Guidelines clearly support outbound investment by qualified Chinese enterprises. At the same time, the Guidelines also calls for third party services to minimize risks in outbound investment, including legal, tax, design consulting, risk assessment, security and other intermediary services. It is foreseeable that outbound investment by Chinese enterprises will continue in a rational and stable way.