On April 8, 2014, NDRC promulgated the Administrative Measures for Approval and Filing of Outbound Investment Projects (Order 9). Order 9 replaced the Tentative Measures for the Administration of Examination and Approval of Outbound Investment Projects (Order 21) with significant changes. Order 9, which became effective May 8, 2014, significantly simplifies the approval process administered by NDRC and their competent local counterparts (the NDRC Authorities) for outbound investments by Chinese enterprises.

Filing Becomes the Primary Requirement

The most significant change introduced by Order 9 is the establishment of a filing (as opposed to approval) regime as the primary regulatory process. Under the replaced Order 21, almost all outbound investment projects must be approved by the NDRC Authorities.

Under Order 9, only two types of outbound projects are subject to approval requirements:

• Projects in which the total investment amount exceeds $1 billion; and

• Projects involving sensitive countries and regions or sensitive industries (collectively, Sensitive Projects). “Sensitive countries and regions” include those countries and regions that do not have diplomatic relations with China.

All other types of outbound investments are subject to a filing requirement only.

Given the high threshold amount (of $1 billion) for projects requiring approval—in the first half of 2013, only CNOOC’s acquisition of Nexen exceeded such amount—most Chinese outbound investments will only need to go through the filing process unless the projects constitute Sensitive Projects.

Clear Approval Timeline

Order 9 clearly sets forth the time limits for the approval procedures. For projects subject to approval, (i) applications from local enterprises (as opposed to centrally-administered stated-owned enterprises) should be sent directly to the NDRC’s provincial counterpart, who should then submit the applications to NDRC together with its review opinions; and (ii) applications from centrally-administered stated-owned enterprises should be sent by its group company or holding company directly to NDRC. If any supplementary documents are required, NDRC must notify the applicant within five working days.

Where an external assessment is needed for a project, Order 9 requires the NDRC Authority to engage a qualified external consultation firm within five working days after the acceptance of an application. While Order 9 does not provide any deadline for the completion of the external assessment, it notes that in principle the assessment should be completed within 40 working days.

NDRC is directed to make its decisions an application for approval within 20 working days, with a possible extension of review time of no more than 10 working days. Order 9 does not provide any time limit for decisions by NDRC’s provincial counterparts, and we expect that such time limit will be clarified in the implementing regulations to be issued by such agencies.

Simple Filing Process

The filing process prescribed under Order 9 is simple and straightforward: projects undertaken by centrally-administered state-owned enterprises or exceeding $300 million are filed with NDRC in Beijing; all other projects are only required to be filed with NDRC’s provincial counterparts. Like the timeline for the approval process, NDRC must notify the applicant within five working days if any supplementary documents are required for the filing. If the outbound investments meet the filing requirements, NDRC is required to issue the filing notice within seven working days after acceptance of the filing application. Order 9 does not provide any time limit for filings by NDRC’s provincial counterparts.

Change in Scope of Applicability

Order 9 is applicable to outbound investment projects by all forms of legal persons established in China, including any investment by way of incorporation, merger and acquisition, equity participation, capital increase or capital injection. It also regulates investments in offshore equity investment funds by way of equity participation or new establishment.

Regarding outbound investments by natural persons or other investment entities, Order 9 notes that separate regulations (to be drafted) will apply.

Certain Relaxation on Re-investment by Chinese Offshore Investors

Contrary to popular perceptions, all offshore investments by the offshore entities controlled by Chinese enterprises (re-investment) were subject to the Order 21 approval regime.

In comparison, Order 9 limits the approval or filing process only to re-investments involving financing or guarantee support from the Chinese enterprises. Practically, as onshore parent financing or guarantees are common in re-investments, we expect this relaxation in Order 9 approval regime to have limited impact.

Slight Change to the Project Information Reporting Regime

For outbound investments over $100 million through acquisitions or competitive bidding, Order 21 required Chinese bidders to submit a project information report to NDRC for NDRC’s approval (in the form of a confirmation letter) before substantive work on such projects can be commenced. Substantive work means: (i) in the context of acquisitions, the signing of definitive transaction documents, the making of a binding offer on the price, or the application to the host country (or region) for approval for the transaction; and (ii) in the context of competitive bidding, the submission of formal bid.

NDRC is required to issue the confirmation letter within seven working days after acceptance of the project information report, if the project is in compliance with the PRC outbound investment policy.

Order 9 substantially maintains such regime. The only significant change is that the threshold amount triggering the review has been increased to $300 million.

Payment of Preliminary Transaction Costs

If Chinese investors need to make payments in foreign exchange during the preliminary phase of their outbound transactions—such as payments for performance bond and letter of guarantee—under the Order 21 regime, they may apply to NDRC for a separate approval, but the amount of such preliminary- phase payments that may be approved is capped at 15 percent of the total investment amount. Order 9 has removed the 15 percent cap.

In practice, the impact of this change is yet to be seen. In the past, the local SAFE branches generally take the conservative approach of shying away from permitting the foreign exchange of the total amount approved by NDRC. It is unclear whether SAFE would modify its practice given the relaxation of the approval regime under Order 9.

Conclusion

Under Order 9, filings now become the primary regulatory process for Chinese outbound investments, and regulatory procedures have been significantly simplified. These changes will facilitate outbound investments by reducing the uncertainty to the transactions brought by the regulatory approval process. However, the “project information reporting” regime remains for projects exceeding $300 million. Moreover, re-investments by offshore entities are still not completely exempted from the NDRC regulatory process.

While the NDRC regulatory procedures have been simplified, arguably the NDRC Authorities still have discretions when it comes to the issuance of approvals and filing notices, and accordingly it remains important for Chinese enterprises to include the NDRC approval or grant of filing notice, as applicable, as a closing condition for their outbound investments.