Domestic regulation of overseas M&A

The relevant departments of the State Council have established a legal framework for outbound investment. The main rules include the Ministry of Commerce’s (MOFCOM) Administrative Measures for Outbound Investment, the National Development and Reform Commission’s (NDRC) Administrative Measures for Approval and Record-filing on Overseas Investment Projects, and various other regulations and notifications on foreign exchange control and the assessment and management of state-owned assets. Chinese regulators have introduced a series of new policies to support the rapid expansion of overseas mergers and acquisitions (M&A).

Emphasis on the record-filing system

According to provisions of the NDRC and MOFCOM, an outbound Chinese investment of US$2 billion or above and involving any sensitive country, region or industry is subject to the approval of the State Council. Other overseas investment projects are subject to the approval of authorities at different levels, based on the nature of the investment and its amount (see Table 1). The table shows that in most cases, only record filing is required, and the approval applies to some exceptional circumstances only.

Information reporting system

According to the administrative measures of the NDRC, for an overseas acquisition or bidding project in which the Chinese party invests US$300 million or above, the Chinese investor should, before carrying out substantive work with a foreign party, submit an information report to the NDRC, which will issue a confirmation letter if the project conforms to national outbound investment policies. To streamline administration and delegate power to the lower levels, the NDRC issued the Decision on the Amendment of Administrative Measures for Approval and Record-filing on Overseas Investment Projects in April 2016, and amended the following systems: (1) delete provisions relating to “if the project conforms to the national outbound investment policies”; and (2) change the “confirmation letter” to “letter of acknowledgement”. If adopted, the amendments will facilitate outbound investment.

Lin Zhong is a partner at EY Chen & Co. Law Firm