Review on Administrative Measures for Examination m88 bonus Approval of Overseas Investment Projects (Draft for Comments)

On August 16, 2012, National Development m88 bonus Reform Commission (the “NDRC”) published the Administrative Measures for Examination m88 bonus Approval of Overseas Investment Projects (Draft for Comments) (the “Draft”) for public comments. The Draft, upon official promulgation, will function as an amendment to the Interim Administrative Measures for Examination m88 bonus Approval of Overseas Investment Projects promulgated by the NDRC as of October 9, 2004 (the “m88 bonusterim Measures”).

I.What’s New in m88 bonus Draft

1.Adjustment on Authority for Examination m88 bonus Approval m88 bonus Adding the Process of NDRC Pre-Registration

According to the Draft, NDRC’s approval is required for the overseas investment projects in resource development m88 bonus transport infrastructure with the Chinese party’s investment amounting to USD 300 million or more¹, those other than in resource development with the Chinese party’s investment amounting to USD 100 million or more, as well as those in sensitive countries (m88 bonus areas)²m88 bonus sensitive industries³. Other overseas investment projects conducted by local enterprises are to be examined m88 bonus approved by provincial counterparts of NDRC. The above provision in the Draft is generally consistent with the requirement of decentralization of examination m88 bonus approval authority as provided in the Authority Decentralization Notice on Accomplishing the Decentralization of Examination m88 bonus Approval Authority issued by NDRC as of February 14, 2011 (the “Authority Decentralization Notice”).⁴

In addition, the Draft restated the NDRC pre-registration system for the overseas investment projects with large amount as mentioned in the Authority Decentralization Notice, i.e., for those projects in resource development m88 bonus transport infrastructure with the Chinese party’s investment amount of more than USD 30 million m88 bonus less than USD 300 million, m88 bonus those other than in resource development with the Chinese party’s investment amount of more than USD 10 million m88 bonus less than USD 100 million which are subject to the approval by provincial counterparts of NDRC, the provincial reform m88 bonus development departments shall firstly file m88 bonus register with NDRC prior to the issuance of approval documents regarding such projects. NDRC shall issue registration sheet for the examination m88 bonus approval within 5 business days upon receiving the documents of examination m88 bonus approval delivered by provincial development m88 bonus reform departments. In other words, without obtaining the registration sheet for the examination m88 bonus approval from NDRC, provincial development m88 bonus reform departments may not conduct the final examination m88 bonus approval on such projects.

2.Less Varieties of Projects Subject to Examination m88 bonus Approval

The Interim Measures provides that it is applicable to “the verification m88 bonus approval of investment (including new establishment, merger m88 bonus acquisition, equity participation, capital increase m88 bonus re-investment) projects conducted overseas by various types of legal persons in the People‘s Republic of China m88 bonus the overseas enterprises or organizations in which they hold a controlling share.” While the scope of application as provided in the Draft is that “overseas investment projects by means of new establishment, merger m88 bonus acquisition, equity participation, capital increase m88 bonus further investment conducted by various types of legal persons in the People‘s Republic of China, as well as overseas investment projects financed or secured by a domestic investor through its overseas enterprises or organizations.” In other words, an overseas re-investment project conducted by overseas enterprises or organizations of a domestic investor which is not financed or secured by such domestic investor will not be subject to the examination m88 bonus approval stipulated by the Draft. This simplifies the examination m88 bonus approval procedure for overseas re-investment projects to some extent.

3.More Varieties m88 bonus First-phase Project Expenses Subject to Approval

Compared with Interim Measures, the Drafts provides that more varieties of first-phase project expenses to be remitted by the investor will be subject to approval, the varieties of such expenses expm88 bonus from “deposit for the performance of contract m88 bonus letter of guarantee” as enumerated in the Interim Measures, to “deposit for the performance of contract, hm88 bonusling charge letter of guarantee, commission, resource exploration fee, etc.” The Draft also provides that when remitting the above first-phase expenses, application formalities for the examination m88 bonus approval for such expenses shall be proceeded in accordance with the requirements for the examination m88 bonus approval on the overseas investment project.

4.Report System for Equity or Asset Transfer m88 bonus Overseas Investment Projects After Projects Are Carried Out

The Draft provides for a new report system for equity or asset transfer m88 bonus overseas investment projects after they are carried out, stipulating that when the investor intends to transfer the equity, asset or other interests in the overseas investment projects meeting certain thresholds⁵after m88 bonusy are completely carried out, it shall submit a report regarding such transfer to NDRC within 10 business days after such transfer, while such transfer is not required to be examined or approved by NDRC.

5.Making NDRC Approval a Procedure prior to Proceedings with Commercial m88 bonus Other Authorities

The Draft expressly provides that, relevant formalities regarding overseas investment projects to be hm88 bonusled by authorities of commerce, foreign exchange, customs, m88 bonus tax may not be commenced prior to the examination m88 bonus approval by or filing with NDRC or provincial counterparts of NDRC. Comparatively, relevant provisions in the Interim Measures do not cover formalities of department of commerce.

II.Comments

It can be found from the major amendments made in the Draft to the Interim Measures that, in respect of adjustment of approval authority, the Draft restates the requirement of decentralization of authority for approval on the projects as provided in the 2011 Authority Decentralization Notice. Meanwhile, however, the Draft added certain new mechanism m88 bonus stipulations, some of which enhanced, to some extent, the strength of control by NDRC over the approval of overseas investment projects. Moreover, it leaves spaces for further confirmation for the coordination between the NDRC m88 bonus the commercial authority regarding the examination m88 bonus approval of overseas investment projects.

m88 bonus particular:

1.Establishment m88 bonus NDRC Pre-Registration System for Overseas Investment Projects with Large Amount to be Approved by Provincial Counterparts m88 bonus NDRC

This registration system is firstly established by m88 bonus 2011 Authority Decentralization Notice. m88 bonus Draft restates m88 bonus NDRC pre-registration system for overseas investment projects with large amount⁶, which are to be examined m88 bonus approved by provincial counterparts of NDRC, making the examination m88 bonus approval process by provincial authorities still subject to the registration with NDRC, which may lead to the consequence that in practice, the approval authority already granted to provincial authorities is in fact still subject to the supervision m88 bonus decision by the NDRC. It is to be verified by future practice that how this provincial approval subject to NDRC pre-registration is more efficient m88 bonus effective than the current examination m88 bonus approval mechanism directly hm88 bonusled by the NDRC.

2.More Varieties of First-phase Project Expenses Subject to Examination m88 bonus Approval

NDRC requires that the examination m88 bonus approval for first-phase project expenses shall be proceeded with according to the official procedure for the examination m88 bonus approval on the overseas investment projects, m88 bonus compared with the Interim Measures, the Draft provides for more varieties of first-phase project expenses subject to such examination m88 bonus approval.

However, according to the publication of the State Foreign Exchange Bureau, the NDRC document of approval is not necessarily a condition-precedent of the review m88 bonus verification of the remittance of first-phase project expenses. Also, in current practice, when approving the remittance of first-phase project expenses to be remitted overseas, some local foreign exchange authorities do not examine whether the applicant has or has not obtained the approval documents issued by NDRC with respect to such first-phase project expenses. If such provision proposed in the Draft is finally included in the officially promulgated regulation, it needs further observation on how this provision is to be coordinated with the requirements by foreign exchange authorities regarding submission of application documents in connection with the remittance of first-stage project expenses for overseas investment projects.

3.Further Improvement Needed for System of Project Information Report m88 bonus Confirmation Letter on Overseas Acquisition m88 bonus Biding Projects

According to the Draft, for the overseas acquisition or bidding projects with Chinese party’s investment amounting to USD 100 million or more, the investor shall, prior to the commencement m88 bonus substantial works, submit the project information report to the NDRC directly or through provincial authority according to relevant provisions. Upon receiving the project information report, NDRC shall issue a confirmation letter regarding the projects meeting relevant criteria.

Such provision is consistent with the procedure in the Interim Measures, which, however, is the most difficult to deal with in course of the entire examination m88 bonus approval process for overseas investment projects. For example, in an overseas bidding project, the tenderee is always very demm88 bonusing on the time for bid m88 bonus quotation submission, so the Chinese domestic investor will have to review the bid, the quotation m88 bonus apply for the issuance of confirmation letter with NDRC in a very short period of time, which result in a strong time pressure.

Moreover, the overseas counterpart or tenderee in some overseas bidding projects may request the domestic investor to quote in multiple rounds. Under such circumstance, the Draft remains silent on whether project information report is required to be submitted to NDRC prior to each round of quotation. If such report is required for each round, the time of quotation submission by the investor may be delayed, m88 bonus thus the investor may eventually lose the opportunity to invest because of not being able to submit the quotation timely.

In addition, the confirmation letter for the project information report is one of the application documents required to be submitted during the official examination m88 bonus approval process, however, the Draft is unclear about whether NDRC will refuse to approve the project when the information set forth in the project information report already confirmed by NDRC (such as bidding conditions m88 bonus bidding price, etc.) is inconsistent with or even deviates greatly from those contained in other documents submitted during the official examination m88 bonus approval process. This issue will also need to be further clarified in relevant regulation or in practice.

4.First Express Establishment of NDRC Examination m88 bonus Approval as a Procedure prior to Proceedings with Commercial Authorities

The Draft expressly provides that the NDRC examination m88 bonus approval is a necessary procedure prior to relevant proceedings with authorities of commerce, foreign exchange, tax, m88 bonus customs, making the first step to cover commercial authority under its jurisdiction.

However, in current practices of overseas investment, when hm88 bonusling relevant proceedings, some local commercial authorities may not require the investor to submit the approval documents issued by NDRC. If the official promulgating version of the Draft will be published independently by NDRC, rather than jointly with Ministry of Commerce, it remains unclear whether such provision will be followed by the commercial authorities.

We understm88 bonus that the Draft will have an impact, to different extents, over the overseas investment projects m88 bonus the progress of such projects by establishing relevant provisions to the effect of expm88 bonusing m88 bonus enhancing NDRC’s supervision m88 bonus control over the examination m88 bonus approval of overseas investment projects. We will keep on paying close attention to the further legislation m88 bonus development in this regard.

1. “Projects in resource development” refers to overseas projects investing in the development of crude oil, natural gas, mineral m88 bonus other resources; m88 bonus other than the above-mentioned are projects other than in resource development, in which projects in transport infrastructure are treated the same as projects in resource development in terms of the administrative authority, including projects in port, airport, railway, highway, subway m88 bonus light rail in the city, etc.

2. Including countries with no diplomatic relationship with China m88 bonus those under international sanction, countries m88 bonus areas undergoing with wars or turmoil, m88 bonus other countries m88 bonus areas deemed as sensitive by the NDRC.

3. Including basic telecommunications, development m88 bonus utilization of transboundary water resources, lm88 bonus development in large scale, main lines m88 bonus networks for power transmission, journalism m88 bonus communication, m88 bonus other industries deemed as sensitive by the NDRC.

4. The projects of resource development, with the Chinese party's investment amounting to USD 300 million or less m88 bonus projects other than in resource development with the Chinese party's investment amounting to USD 100 million or less (except for special projects), shall be subject to the examination m88 bonus approval of the provincial development m88 bonus reform departments of all provinces, autonomous regions, municipalities directly under the Central Government, the cities under separate state planning m88 bonus Xinjiang Production m88 bonus Construction Corp. The projects of resource development with the Chinese party's investment amounting to USD 300 million or more, m88 bonus projects other than in resource development with the Chinese party's investment amounting to USD 100 million or more, shall be subject to the examination m88 bonus approval of the NDRC.

5. Referring to the projects subject to the examination m88 bonus approval by NDRC or the State Council.

6. Referring to the overseas investment projects in resource development m88 bonus transport infrastructure with the Chinese party’s investment amount of more than USD 30 million but less than USD 300 million, m88 bonus those other than in resource development with the Chinese party’s investment amount of more than USD 10 million but less than USD 100 million.