Handing down authority for foreign investment

On March 5 and 6 2009, the Ministry of Commerce (Mofcom) issued two circulars which further delegate approval authority for foreign investment to provincial and quasi-provincial authorities. Taken together, the Circular on Further Improving the Examination and Approval of Foreign Investment (March 5 Notice) (关于进一步改进外商投资审批工作的通知) and the Circular on Delegating to Lower-level authorities the Authority to Examine and Approve the Investment in, and Establishment of, Companies with an Investment Nature by Foreign Investors (March 6 Notice) (关于下放外商投资举办投资性公司审批权限的通知) have the cumulative effect of significantly reducing the control of the central government on foreign investment.

Delegating FIE Approval Rights

(1) Approval for newly-established foreign-invested enterprises (FIEs), including companies limited by shares (or translated to joint stock companies), which fall into the Encouraged Category and do not require the state's assistance in balancing foreign exchange, is no longer reserved to Mofcom and is instead delegated to provincial approving authorities, irrespective of the total investment amount – the aggregate of the registered capital and the borrowing capacity of an FIE approved by the approving authority – of such FIEs. Approval of Encouraged Category FIEs with a total investment of more than US$100 million was previously reserved as a power of Mofcom. Approval for any subsequent capital increase or amendment to the joint venture contract/articles of association of the FIEs described above is delegated to provincial approving authorities as well. In addition, the delegation is also expanded to any subsequent changes with respect to those FIEs which were previously approved by Mofcom except for (i) any capital increase that requires the approval of the National Development and Reform Commission (NDRC); and (ii) any transfer of a controlling interest from a Chinese party to a foreign party.