NDRC Proposes Changes to China's Outbound Investment Rules

Introduction
China's National Development and Reform Commission ("NDRC") is proposing for public comment amendments to its rules governing outbound investment by Chinese companies. On April 13, 2016, the NDRC released an announcement of requesting public comment on the Administrative Measures for Approval and Registration of Outbound Investment Projects (《境外投资项目核准和备案管理办法》). The proposed amendments are partly intended to further facilitate Chinese companies' outbound investment and simplify NDRC's review and approval process. The comment period ends on May 13, 2016.
The existing Administrative Measures for Approval and Registration of Outbound Investment Projects, as amended, was initially promulgated by the NDRC on April 8, 2014, which became effective on May 8, 2014. The existing rules replaced the Interim Administrative Measures for Approval of Outbound Investment Projects (《境外投资项目核准暂行管理办法》) issued by the NDRC in October 2004.
Proposed Amendments - Highlights
Delegation of approval authority. Under the existing NDRC rules, outbound investment projects involving sensitive countries/regions or sensitive industries require NDRC approval, and outbound investment projects involving an investment amount of US$2 billion or more and sensitive countries/regions and sensitive industries require approval by the State Council, the highest executive branch of the Chinese government. According to the proposed amendments, the requirement for the State Council approval has been removed. Under both the existing NDRC rules and its proposed amendments, sensitive countries/regions mean those countries/regions which China has not established diplomatic relationships with, or are internationally sanctioned, or where wars or civil unrests are taking place; sensitive industries include basic telecommunication, cross-border exploration of water resources, large-scale land development, electric artery, power grid, press and media.
Registration of outbound investment projects. Under both the existing NDRC rules and the proposed amendments, only projects involving sensitive countries/regions or sensitive industries require NDRC approval. All other outbound investment projects only need to be filed and registered with the NDRC or its provincial-level counterparts. Under both the existing NDRC rules and its proposed amendments, (i) outbound investment projects of state-owned enterprises ("SOE") administered by China's central government and (ii) outbound investment projects of local companies (including local SOEs) where the Chinese party's investment involves an amount of US$300 million or more need to be filed with the NDRC; whereas, outbound investment projects of local companies (including local SOEs) where the Chinese party's investment involves an amount of less than US$300 million need to be filed with the provincial-level branch of the NDRC only.
Simplified procedures for pre-reporting. Under the existing NDRC rules, a Chinese company must submit a project information report to the NDRC and obtain a confirmation letter from the NDRC prior to commencing any "substantive work" in connection with an outbound investment project; if the project complies with the PRC outbound investment policies, the NDRC will issue the confirmation letter to the applicant within seven working days after the submission. According to the proposed amendments, it appears that the NDRC will not conduct substantive review of the project information report, and instead of issuing a confirmation letter, the NDRC will issue an acceptance letter within seven working days after the submission. Under both the existing NDRC rules and its proposed amendments, "substantive work" means entering into a binding agreement, making a binding offer or lodging any application with any government or regulatory authority in the target jurisdiction in connection with outbound acquisitions; and with respect to outbound competitive bidding projects, "substantive work" means formally submitting a bid for the project.
Bank financing letter no longer required. Under the existing NDRC rules, a financing letter from a bank must be submitted as part of the application documents in connection with outbound investment projects which require approval by the NDRC or the State of Council. According to the proposed amendments, such requirement has been removed.
Outbound investment in Taiwan. The existing NDRC rules provide that detailed administrative measures for outbound investment in Taiwan will be formulated separately. According to the proposed amendments, outbound investment projects involving Taiwan with be regulated with reference to the same Administrative Measures for Approval and Registration of Outbound Investment Projects, the NDRC or its local counterparts, as applicable, will consult appropriate government authorities in charge of Taiwan affairs in connection with the approval or registration of the outbound investment projects.