Progress or Setback? Looking at the New Approval Measures for Foreign Investment Projects

By Xu Ping and Mark Schaub, King & Wood, Beijing and Shanghai

An important cornerstone of the PRC's foreign investment system has been the ability of the government to control the flow of investment by way of approval Measures that are overseen by various departments. Of course, the ability to do this has not been absolutely effective. The working of the approval system has not been without its own complexity given that questions often arose as to which authorities were required to approve the project, and more frequently, which level of a particular authority was involved.

As a rule, the approval of the Ministry of Commerce (MOFCOM) or its authorized subordinate body in respect of the foreign investment aspect of a transaction has been required for the establishment of foreign-invested enterprises (FIEs). Determining the relevant level of approval has often been a contentious point for Chinese partners or local officials. Chinese partners to joint ventures and local officials normally have had a strong interest in keeping the approval at the local level (where their connections were strongest), rather than having to submit the project to the central-level authority. Indeed, over the years many projects have been artificially split into smaller units in order to lower the total investment amount and therefore avoid the involvement of a higher-level authority.