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China: New Rules on Overseas Investment Released

(Sept. 7, 2017) On August 18, 2017, China’s State Council released a set of new rules directing Chinese companies’ overseas investment. According to the Opinions on Further Guiding and Regulating the Direction of Overseas Investment (Guiding Opinions), investments in the real estate, hotel, cinema, entertainment industry, and sports club sectors will be subject to government examination and approval.  The Guiding Opinions were jointly formulated by the National Development and Reform Commission (NDRC), the Ministry of Commerce, the People’s Bank of China, and the Ministry of Foreign Affairs.  (Guowuyuan Bangongting Zhuanfa Guojia Fazhan Gaige Wei, Shangwubu, Renmin Yinhang, Waijiao Bu Guanyu Jinyibu Zhidao he Guifan Jingwai Touzi Fangxiang Zhidao Yijian de Tongzhi (Aug. 4, 2017), State Council website; Opinions on Further Guiding and Regulating the Direction of Overseas Investments, Paul Weiss (last visited Sept. 5, 2017) (unofficial English translation).)

The Guiding Opinions divide overseas investment into three categories: encouraged, restricted, and banned. Among the restricted investments, three types will be subject to the pre-approval of government outbound-investment regulators: (1) investments in the above-mentioned sectors, in which Chinese companies are thought to have invested “irrationally” in the past (Guojia Fagaiwei Youguan Fuzeren Jiu “Guanyu Jinyibu Yindao he Guifan JIngwai Touzi Fangxiang de Zhidao Yijian” Da Jizhe Wen [NDRC Officials Concerned Respond to the Press Concerning “Opinions on Further Guiding and Regulating the Directions of Overseas Investment”], State Council website (Aug. 18, 2017)); (2) investments in countries or regions that have not established diplomatic relations with China, war areas, or sensitive countries or regions the investments in which are restricted by bilateral or multilateral treaties; and (3) establishment of overseas equity investment funds or investment platforms without underlying business operations.  (Guiding Opinions, § IV.)  Investments failing to meet the destination countries’ environmental protection, energy consumption, and safety standards are also in the restricted category of investment, but are not subject to the pre-approval.  (Id.)

In the encouraged category, investment in infrastructure projects relevant to the “One Belt, One Road” initiative proposed by President Xi Jinping is given priority. Overseas investments that may drive the export of domestic advantaged industrial capacity, high-quality equipment, or technical standards are encouraged.  Chinese companies are also encouraged to cooperate with foreign new and high technological and advanced manufacturing companies and to establish offshore research and development centers.  (Id. § III.)

Investments that endanger or may endanger the national interest or national security are prohibited. These include investment involving the export of core military technologies and products without government approval; investments using technologies, techniques, and products that are banned from export; and investments in gambling or sex sectors. (Id. § V.)