2012.11.09 HE, Fang、Zhao, Pengli
On August 16, 2012, National Development and Reform Commission (the “NDRC”) published the Administrative Measures for Examination and Approval of Overseas Investment Projects (Draft for Comments) (the “Draft”) for public comments. The Draft, upon official promulgation, will function as an amendment to the Interim Administrative Measures for Examination and Approval of Overseas Investment Projects promulgated by the NDRC as of October 9, 2004 (the “Interim Measures”).
I. What’s New in the Draft
1. Adjustment on Authority for Examination and Approval and Adding the Process of NDRC Pre-Registration
According to the Draft, NDRC’s approval is required for the overseas investment projects in resource development and transport infrastructure with the Chinese party’s investment amounting to USD 300 million or more1, those other than in resource development with the Chinese party’s investment amounting to USD 100 million or more, as well as those in sensitive countries (and areas)2 and sensitive industries3. Other overseas investment projects conducted by local enterprises are to be examined and approved by provincial counterparts of NDRC. The above provision in the Draft is generally consistent with the requirement of decentralization of examination and approval authority as provided in the Authority Decentralization Notice on Accomplishing the Decentralization of Examination and Approval Authority issued by NDRC as of February 14, 2011 (the “Authority Decentralization Notice”).4
In addition, the Draft restated the NDRC pre-registration system for the overseas investment projects with large amount as mentioned in the Authority Decentralization Notice, i.e., for those projects in resource development and transport infrastructure with the Chinese party’s investment amount of more than USD 30 million and less than USD 300 million, and those other than in resource development with the Chinese party’s investment amount of more than USD 10 million and less than USD 100 million which are subject to the approval by provincial counterparts of NDRC, the provincial reform and development departments shall firstly file and register with NDRC prior to the issuance of approval documents regarding such projects. NDRC shall issue registration sheet for the examination and approval within 5 business days upon receiving the documents of examination and approval delivered by provincial development and reform departments. In other words, without obtaining the registration sheet for the examination and approval from NDRC, provincial development and reform departments may not conduct the final examination and approval on such projects.
2. Less Varieties of Projects Subject to Examination and Approval
The Interim Measures provides that it is applicable to “the verification and approval of investment (including new establishment, merger and acquisition, equity participation, capital increase and re-investment) projects conducted overseas by various types of legal persons in the People‘s Republic of China and the overseas enterprises or organizations in which they hold a controlling share.” While the scope of application as provided in the Draft is that “overseas investment projects by means of new establishment, merger and acquisition, equity participation, capital increase and further investment conducted by various types of legal persons in the People‘s Republic of China, as well as overseas investment projects financed or secured by a domestic investor through its overseas enterprises or organizations.” In other words, an overseas re-investment project conducted by overseas enterprises or organizations of a domestic investor which is not financed or secured by such domestic investor will not be subject to the examination and approval stipulated by the Draft. This simplifies the examination and approval procedure for overseas re-investment projects to some extent.
3. More Varieties of First-phase Project Expenses Subject to Approval
Compared with Interim Measures, the Drafts provides that more varieties of first-phase project expenses to be remitted by the investor will be subject to approval, the varieties of such expenses expand from “deposit for the performance of contract and letter of guarantee” as enumerated in the Interim Measures, to “deposit for the performance of contract, handling charge letter of guarantee, commission, resource exploration fee, etc.” The Draft also provides that when remitting the above first-phase expenses, application formalities for the examination and approval for such expenses shall be proceeded in accordance with the requirements for the examination and approval on the overseas investment project.
4. Report System for Equity or Asset Transfer of Overseas Investment Projects After Projects Are Carried Out
The Draft provides for a new report system for equity or asset transfer of overseas investment projects after they are carried out, stipulating that when the investor intends to transfer the equity, asset or other interests in the overseas investment projects meeting certain thresholds 5 after they are completely carried out, it shall submit a report regarding such transfer to NDRC within 10 business days after such transfer, while such transfer is not required to be examined or approved by NDRC.
5. Making NDRC Approval a Procedure prior to Proceedings with Commercial and Other Authorities
The Draft expressly provides that, relevant formalities regarding overseas investment projects to be handled by authorities of commerce, foreign exchange, customs, and tax may not be commenced prior to the examination and approval by or filing with NDRC or provincial counterparts of NDRC. Comparatively, relevant provisions in the Interim Measures do not cover formalities of department of commerce.
II. Comments
It can be found from the major amendments made in the Draft to the Interim Measures that, in respect of adjustment of approval authority, the Draft restates the requirement of decentralization of authority for approval on the projects as provided in the 2011 Authority Decentralization Notice. Meanwhile, however, the Draft added certain new mechanism and stipulations, some of which enhanced, to some extent, the strength of control by NDRC over the approval of overseas investment projects. Moreover, it leaves spaces for further confirmation for the coordination between the NDRC and the commercial authority regarding the examination and approval of overseas investment projects.
In particular:
1. Establishment of NDRC Pre-Registration System for Overseas Investment Projects with Large Amount to be Approved by Provincial Counterparts of NDRC
This registration system is firstly established by the 2011 Authority Decentralization Notice. The Draft restates the NDRC pre-registration system for overseas investment projects with large amount 6, which are to be examined and approved by provincial counterparts of NDRC, making the examination and approval process by provincial authorities still subject to the registration with NDRC, which may lead to the consequence that in practice, the approval authority already granted to provincial authorities is in fact still subject to the supervision and decision by the NDRC. It is to be verified by future practice that how this provincial approval subject to NDRC pre-registration is more efficient and effective than the current examination and approval mechanism directly handled by the NDRC.
2. More Varieties of First-phase Project Expenses Subject to Examination and Approval
NDRC requires that the examination and approval for first-phase project expenses shall be proceeded with according to the official procedure for the examination and approval on the overseas investment projects, and compared with the Interim Measures, the Draft provides for more varieties of first-phase project expenses subject to such examination and approval.
However, according to the publication of the State Foreign Exchange Bureau, the NDRC document of approval is not necessarily a condition-precedent of the review and verification of the remittance of first-phase project expenses. Also, in current practice, when approving the remittance of first-phase project expenses to be remitted overseas, some local foreign exchange authorities do not examine whether the applicant has or has not obtained the approval documents issued by NDRC with respect to such first-phase project expenses. If such provision proposed in the Draft is finally included in the officially promulgated regulation, it needs further observation on how this provision is to be coordinated with the requirements by foreign exchange authorities regarding submission of application documents in connection with the remittance of first-stage project expenses for overseas investment projects.
3. Further Improvement Needed for System of Project Information Report and Confirmation Letter on Overseas Acquisition and Biding Projects
According to the Draft, for the overseas acquisition or bidding projects with Chinese party’s investment amounting to USD 100 million or more, the investor shall, prior to the commencement of substantial works, submit the project information report to the NDRC directly or through provincial authority according to relevant provisions. Upon receiving the project information report, NDRC shall issue a confirmation letter regarding the projects meeting relevant criteria.
Such provision is consistent with the procedure in the Interim Measures, which, however, is the most difficult to deal with in course of the entire examination and approval process for overseas investment projects. For example, in an overseas bidding project, the tenderee is always very demanding on the time for bid and quotation submission, so the Chinese domestic investor will have to review the bid, the quotation and apply for the issuance of confirmation letter with NDRC in a very short period of time, which result in a strong time pressure.
Moreover, the overseas counterpart or tenderee in some overseas bidding projects may request the domestic investor to quote in multiple rounds. Under such circumstance, the Draft remains silent on whether project information report is required to be submitted to NDRC prior to each round of quotation. If such report is required for each round, the time of quotation submission by the investor may be delayed, and thus the investor may eventually lose the opportunity to invest because of not being able to submit the quotation timely.
In addition, the confirmation letter for the project information report is one of the application documents required to be submitted during the official examination and approval process, however, the Draft is unclear about whether NDRC will refuse to approve the project when the information set forth in the project information report already confirmed by NDRC (such as bidding conditions and bidding price, etc.) is inconsistent with or even deviates greatly from those contained in other documents submitted during the official examination and approval process. This issue will also need to be further clarified in relevant regulation or in practice.
4. First Express Establishment of NDRC Examination and Approval as a Procedure prior to Proceedings with Commercial Authorities
The Draft expressly provides that the NDRC examination and approval is a necessary procedure prior to relevant proceedings with authorities of commerce, foreign exchange, tax, and customs, making the first step to cover commercial authority under its jurisdiction.
However, in current practices of overseas investment, when handling relevant proceedings, some local commercial authorities may not require the investor to submit the approval documents issued by NDRC. If the official promulgating version of the Draft will be published independently by NDRC, rather than jointly with Ministry of Commerce, it remains unclear whether such provision will be followed by the commercial authorities.
We understand that the Draft will have an impact, to different extents, over the overseas investment projects and the progress of such projects by establishing relevant provisions to the effect of expanding and enhancing NDRC’s supervision and control over the examination and approval of overseas investment projects. We will keep on paying close attention to the further legislation and development in this regard.
1. “Projects in resource development” refers to overseas projects investing in the development of crude oil, natural gas, mineral and other resources; and other than the above-mentioned are projects other than in resource development, in which projects in transport infrastructure are treated the same as projects in resource development in terms of the administrative authority, including projects in port, airport, railway, highway, subway and light rail in the city, etc.
2. Including countries with no diplomatic relationship with China and those under international sanction, countries and areas undergoing with wars or turmoil, and other countries and areas deemed as sensitive by the NDRC.
3. Including basic telecommunications, development and utilization of transboundary water resources, land development in large scale, main lines and networks for power transmission, journalism and communication, and other industries deemed as sensitive by the NDRC.
4. The projects of resource development, with the Chinese party's investment amounting to USD 300 million or less and projects other than in resource development with the Chinese party's investment amounting to USD 100 million or less (except for special projects), shall be subject to the examination and approval of the provincial development and reform departments of all provinces, autonomous regions, municipalities directly under the Central Government, the cities under separate state planning and Xinjiang Production and Construction Corp. The projects of resource development with the Chinese party's investment amounting to USD 300 million or more, and projects other than in resource development with the Chinese party's investment amounting to USD 100 million or more, shall be subject to the examination and approval of the NDRC.
5. Referring to the projects subject to the examination and approval by NDRC or the State Council.
6. Referring to the overseas investment projects in resource development and transport infrastructure with the Chinese party’s investment amount of more than USD 30 million but less than USD 300 million, and those other than in resource development with the Chinese party’s investment amount of more than USD 10 million but less than USD 100 million.
