New rules to boost investment overseas
Mainland firms will not require government approval for foreign investments under US$1b, marking a significant easing of regulations
Analysts have hailed the central government’s recent easing of rules on overseas investments as a major boost for the ambitions of outward-looking mainland companies.
“This is a very big change and it will lead to more outbound investments,” said Amanda Yao, a partner at British law firm Pinsent Masons.
Carson Wen, a partner at US law firm Jones Day, also sees the benefits from a more streamlined process. “Hitherto the need to obtain government approvals has been a major obstacle to Chinese companies successfully acquiring offshore targets,” Wen said.
On December 2, the State Council promulgated a “Catalogue for Investment Projects to be Approved by the Government”. According to the document, any outbound investment below US$1 billion that does not involve sensitive countries or industries will not require approval by the National Development and Reform Commission (NDRC).
Previously, an outbound investment of more than US$100 million in any non-resource project required the NDRC’s approval at the central government level, said Cindy Pan, a lawyer at international law firm Dentons. For resource projects, outbound investments over US$300 million previously needed NDRC approval at the local government level, said Pan.
Mao Tong, a partner at US law firm Squire Sanders, said: “The latest relaxation is quite significant. Increasingly, many outbound investments from China now require more than US$100 million.
“This policy change seems particularly helpful for Chinese investors to invest in the United States and Europe, where investment projects often require between US$100 million and US$1 billion.”
Pan said the new policy would streamline approval procedures. Previously, it could take a few months to a year to obtain all government approvals, she said.
“The new policy could substantially reduce the approval time,” Pan said.
Yao said the change ushered in simpler application and approval procedures for overseas investments. Previously, approvals from both the NDRC and the Ministry of Commerce were required for almost all outbound investments, she said.
Kong Linglong, the head of the commission’s outbound investment department, was quoted in media reports as saying that investment projects of less than US$1 billion would require only straightforward registration procedures, provided they there deemed not to be sensitive.
Some economists said the new policy would help stabilise the mainland’s capital account.
Nomura chief China economist Zhang Zhiwei said the move was positive from the macroeconomic perspective.
“There have strong capital inflows into the mainland, and it makes sense to encourage more capital outflows to balance the external capital account,” he said.
“There are more investment opportunities abroad than on the mainland, where industries are troubled with overcapacity. Expect more deals outside the country in the next few years.”
According to the commerce ministry, outbound direct investments surged 20 per cent to US$69.5 billion in the first 10 months of this year, involving 4,200 Chinese enterprises in 156 countries. Most of the investments went into mining, wholesaling, retailing, manufacturing and construction.
US consultancy Rhodium Group said in a report: “The reforms announced at the third plenum are likely to bolster China’s outbound foreign direct investment stock, which we project to grow from the current US$500 billion to between US$1 trillion and US$2 trillion by 2020.”