Highlights of the operational requirements under the new measures for the administration of overseas investment of enterprises

On 26 December 2017, China’s National Development and Reform Commission (“NDRC”) issued the Measures for the Administration of Overseas Investment of Enterprises (“New Measures”), which came into effect on 1 March 2018, and on the same day replaced the Measures for the Administration of Approval and Record-filing of Overseas Investment Projects issued by the NDRC in 2014 (“2014 Measures”).

In comparison with the 2014 Measures, the New Measures apply to more organizations and investment activities, strengthen the interim and ex post supervision by introducing reporting formalities, streamline compliance procedures by removing the pre-confirmation requirement and simplifying approval and record-filing procedures, and extend the deadline for completing formalities.

Importantly, the New Measures eliminate the need to acquire a confirmation letter, commonly known as a “road pass”, which was previously required for Chinese parities prior to making a binding offer with respect to certain types of overseas investment. The road pass requirement was often a source of concern for foreign vendors who were unsure whether the Chinese parties they were in discussion with would be qualified to make a binding bid or whether one Chinese party holding a road pass would preclude other Chinese bidders from obtaining one. This uncertainty has now been eliminated. The New Measures also provide that the satisfaction of approval or fulfilment of record-filing requirements should take place prior to project implementation rather than prior to an agreement becoming binding as was the case under the 2014 Measures. With this change, while completion risks may remain, the parties can be confident that a binding agreement that includes deal protection provisions, such as breakup fees, can be entered into prior to completing the NDRC procedures. Under the 2014 Measures, the agreement itself and all of the provisions therein would not be binding until the NDRC procedures had been complied with. This often put Chinese bidders at a disadvantage in competitive bidding situations.

For clarification purposes, the compliance regime under the New Measures does not affect the other parallel regime which also involves the approval, record-filing and reporting formalities in respect of Chinese overseas investments regulated and administered by the Ministry of Commerce and its local counterparts.

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