• Jinying Zhan

China Outbound Investment Policies

Updated: Feb 4, 2019

People feel outbound investments more difficult, even though China has been proactively promoting its “One Belt and One Road” program.

Many people have asked me to approached Chinese investors for some interesting projects. While I am honored to be asked, I feel people here need to have some basic understanding for China’s outbound investment policies, because some of projects might be restricted or prohibited projects to be invested by Chinese. Outbound investments now are more regulated to make people feel outbound investments more difficult, even though China has been proactively promoting its “One Belt and One Road” program.

Last year (yes, we are not in 2018), 2 new regulations were issued to specify rules for the outbound investment from China: The Guiding Opinions on Further Directing and Regulating the Direction of Overseas Investments (“Opinions”) and Administrative Measures on Overseas Investment by the Enterprises (“Measures”). The former introduces a general negative list for outbound investments; and the latter was amended from a previous regulation to detail governmental procedures for monitoring outbound investments.

Negative List for Outbound Investments from China

The Opinions categorizes outbound investments into 3 areas: (1) encouraged; (2) restricted; and (3) prohibited. But whether encouraged, restricted, or prohibited, all outbound investments are subject to governmental procedures as provided in the Measures.

(1) Encouraged outbound investments:

Investments to the infrastructure projects supporting “One Belt and One Road” program; Output of China’s high-quality equipment, technology standards and industries with comparative advantages; Investments to R&D centers; Investments to explore and exploit energy resources; Investments in agricultural coordination projects; Investments in business trade, cultural and logistics and financial services.

(2) Restricted outbound investments:

Investments to the sensitive countries and regions; Investments in real estate, hotel, movie theme Park, entertainment, sports Club; Investments to Investment fund or platform without specific industrial projects; Investments to outdated technologies that does not meet technology standards in hosting countries; Investments that do not meet environmental protection, energy, and safety standards in the hosting countries.

(3) Prohibited investments:

Output core military technologies and products that are not approved by Chinese government; Investments to technologies, skills, craftsmanship and products that are prohibited to export; Gambling, porn industry; Investments prohibited according to international treaties; and Investments that could bring harm or danger to national interest and security.

Governmental Procedures Required for All Outbound Investments

The Measures amended in 2017 imposes different approval requirements on outbound investments based on 2 categories: (1) Sensitive Investments; and (2) Non-Sensitive Investments. All Sensitive Investments are subject to examination procedure; and all Non-Sensitive Investments are subject to recordation filing procedure.

Sensitive Investments are defined by 2 criteria: (i) investments that are related to sensitive countries or regions; and (ii) investments that are related to sensitive industries.

Sensitive countries and regions include (i) those China does not have diplomatic relationship; (ii) those are in war or in civil conflict; (iii) those are subject to restriction based on international treaties or protocols to which China is a party; (iv) other sensitive countries.

Sensitive industries mean (i) research, production and maintenance in weapons and military supplies; (ii) development and exploitation of cross-border water resources; (iii) news medias; (iv) other industries that need restriction from outbound investments based on Chinese law and policies.

“Non-Sensitive Investments” are defined as any investment not related to “sensitive countries, regions and industries”. Together with the definition of “Sensitive Investments”, the fact is all outbound investments are now subject to examination or recordation filing procedure. Examination procedure is a substantive review for those listed in the Sensitive Investments category. Although the Measures emphasizes recordation filing is the primary measure to review the outbound investment, practically, non-sensitive investments might also be subject to substantive review based on open language stated in the Measures.

Outbound Investments by Individuals

Both the Opinions and the Measures do not include the policies for outbound investments made by individual persons. The general understanding is that investments made by individual persons are not subject to governmental approval procedures as provided in these 2 regulations.

However, Chinese government uses foreign currency control policies to leverage how much and how frequent each person can send money out of the country, which makes the outbound investments such as EB-5 very difficult for Chinese individual investors. It is provided that Chinese individuals can do foreign direct investment, however, it is not clear whether rules in the Measures and the Opinions are applied to individual’s outbound investment.

The legislative purpose for these new regulations was to make sure outbound investments from China to become more rational due to the facts that initial outbound investments from China have received negative outcome. Chinese government encourages investors do more research, planning and analysis before making any outbound investment decision. China does promote outbound investments if they are legitimate and comply with outbound investment policies, but tightened policies do make people feel it has become more difficult to invest out of the country as Chinese government is baby-sitting business operation in China.

For all state-owned companies managed by central government, there are more rigid rules to follow for their outbound investments.

Notes: This article is a very short summary for a general understanding of China’s outbound investment policies. There are more detailed rules to follow for each specific issue. Do not treat this article as the legal opinion. If you have any question, please contact us.

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