More approvals to be done locally

December 18, 2008 | BY

clpstaff &clp articles &

Closer scrutiny of big deals

Near the end of 2008, the Ministry of Commerce (Mofcom) issued two Circulars which allow lower-level authorities to approve certain investments made by foreign enterprises.

Unless the investments exceed US$100 million for encouraged projects, or US$50 million in “restricted” projects, foreign investors need not apply to Mofcom for approval – they can go directly to local authorities. This should speed up many approvals and make life considerably simpler.

The move to hand down power is part of a bigger strategy, driven by a State Council Notice issued in 2007 (Decision on Abolishing or Adjusting a Fourth Batch of Items Subject to Administrative Examination and Approval), and has generally been welcomed.

“There's a general trend towards delegation and that's a good thing,” says Jonathan Reardon, a corporate partner of Pinsent Masons in Shanghai. “It decreases transaction costs – it's as simple as that.”

Local agencies will also be conscious of the need to keep the central authorities happy while also trying to attract foreign investors. This should lead to more competition and more streamlined local procedures.

There are drawbacks, though. As senior associate William Soileau explains, although the complexity of getting approvals will be decreased “vertically”, it will increase “horizontally”.

“The downside of local approval, which is otherwise more efficient, [is that] across the nation there will be substantial variation as to what is requested,” he says.


Free to fight monopolies

Delegation will have an important effect on the top-level agencies such as Mofcom – it will free up precious resources. Until the Circulars were issued, Mofcom had to deal with many different issues, and there had been complaints about the time taken to issue approvals. The Ministry will now have more time and manpower to scrutinise bigger deals and deal with strategic issues, which include decision related to anti-competitive behaviour.

“Central Mofcom still retains discretion to approve certain things – also anti-trust issues and strategic investments in listed companies,” says Terence Foo of Clifford Chance.

The move to delegate may lead to faster approvals for everyday transactions, but for those attempting landmark deals or acquisitions which will trigger examination on anti-monopoly grounds, things may get a little tougher.

(This article is part of the New directions for China in 2009 special feature)

This premium content is reserved for
China Law & Practice Subscribers.

  • A database of over 3,000 essential documents including key PRC legislation translated into English
  • A choice of newsletters to alert you to changes affecting your business including sector specific updates
  • Premium access to the mobile optimized site for timely analysis that guides you through China's ever-changing business environment
For enterprise-wide or corporate enquiries, please contact our experienced Sales Professionals at +44 (0)203 868 7546 or [email protected]