Highlights

• NDRC launches new regulations, which indicates further relaxation measures on PRC outbound investment.
• The controversial “road-pass” requirement has been removed.
• The NDRC approval and filing requirement has been changed from a condition for effectiveness of the acquisition contract to a condition for closing.

Main Article

On December 26, 2017, the National Development and Reform Commission (“NDRC”) formally promulgated the Administrative Measures for Outbound Investment by Enterprises (“Order No. 11” or the “New Measures”) in lieu of the Administrative Measures for the Verification and Approval and Record-Filing of Outbound Investment Projects promulgated in April 2014 (as amended in December 2014) (“Order No. 9” or the “Old Measures”).  Order No. 11 will come into effect on March 1, 2018.  It largely adopted the provisions of the Administrative Measures for Outbound Investment by Enterprises (Draft for Comments) promulgated by the NDRC on November 3, 2017.

Compared with Order No. 9, Order No. 11 is less regulated in NDRC’s reviews of outbound investment, and has simplified the process and requirements of review. Overall, it will be conducive to outbound investment projects.

In the New Measures, the major simplified procedures include:

1. The “confirmation letter” is no longer required.

The Old Measures provided that the investor of an outbound investment or bidding project with the investment amount reaching or exceeding USD 300 million was required to submit a project information report to and obtain a confirmation letter (also known as “Road-Pass”) from the NDRC. This provision has been removed in the New Measures.  This simplification removal is one of the most welcome signals for market players in the area.  In China’s outbound investment practices, what troubled and concerned overseas sellers the most has been whether the Chinese investors had obtained and when they would obtain the confirmation letters from the NDRC, because the Chinese investor could not submit a binding offer to the overseas seller or sign a binding contract until the confirmation letter was obtained.  The abolishment of confirmation letters will undoubtedly increase the flexibility of Chinese bidders in overseas investment bidding.

2. The verification and approval by or record-filing with the NDRC has changed from a condition for the contract to take effect to a condition precedent to closing.

The Old Measures provided that prior to signing any final and legally binding document with an external party, the Chinese investor should obtain the verification and approval document or the record-filing notice issued by the NDRC; alternatively, the investor could specify in the document signed that it should come into effect on the condition that the verification and approval document or the record-filing notice issued by the NDRC was obtained. It was relatively difficult to meet this requirement in practice.  Sellers are unwilling to accept that provisions on break-up fee, security deposit, and many other seller protection mechanisms ultimately would not take effect until NDRS approves it, so in some projects it was stipulated in the contract that the NDRC’s verification and approval document or record-filing notice was only a condition for closing of the transaction.  However, this is certainly not in line with Order No. 9, and its validity was questionable.  In the New Measures, amendments have been made to only require that Chinese investors shall obtain the verification and approval document or the record-filing notice prior to the implementation of the project (i.e., the actual payment of funds to overseas sellers or the actual investment of funds in overseas projects), which reflects and meets the practical needs of the parties.

3. Making applications via the NDRC’s local counterpart is no longer required, and direct online applications are encouraged.

The Old Measures required investors to submit applications via the NDRC’s local counterpart, which was unnecessary in practice and delayed the review and approval process. The New Measures have removed this requirement and encourage direct online applications.  Previously, although the local counterpart of the NDRC provided great support, some clients had experienced delays before their applications were successfully submitted to the NDRC via its local counterpart.  Now making applications directly to the NDRC is indeed more simplified and takes less time, which will accelerate the response by Chinese investors in overseas bidding procedures.

4. Less time is needed for project assessment.

The New Measures slightly adjusted the time limit for project assessment. As for most projects, the time limit for assessment is reduced from 40 working days to 30 working days, while it can be extended to 60 working days for major projects if it is appropriate.

In general, the New Measures as compared with the old ones have optimized and simplified the NDRC review and filing procedures for outbound investment projects. To a certain extent, they can improve the transparency of the Chinese government’s regulations over outbound investments and reduce the confusion and worries of overseas sellers over the approvals by the Chinese government, so it should be good news for Chinese outbound investment.