John Shi, head of DLA Piper's corporate practice in Beijing, foresees conflict: “There is speculation that the Measures will be released by the NDRC as was the case before. But the problem will be NDRC Measures cannot prevail over rules promulgated by other authorities of the same level.”

Article 24 has raised questions over current practices and it is still unclear whether NDRC approval would ever supersede MOFCOM's. “Clashes over investment approval between the NDRC and MOFCOM are expected to continue if this issue is not resolved,” added Shi.

Streamlining approvals

The NDRC has narrowed the scope of its activities by amending Article 2 to limit the investments subject to review. The Article states that approval is no longer required if an outbound investment is made by an overseas subsidiary of a domestic company, provided the company has no part in funding or in a guarantee.

“Chinese investors will be tempted to use their offshore subsidiaries to carry out outbound investments in their thinking that such investments will not be subject to review under the Measures,” said Shi. He reminded investors to be cautious and consider the logistics of the entire investment, especially during the early stages after the Measures have been promulgated.

Provincial-level DRCs have been given the green light to assess investments that fall under certain investment thresholds. For projects classed as resources development, transportation and infrastructure, only provincial approval is necessary for investments under $30 million. For all other projects, the threshold is under $10 million.

Granting power to local-level authorities normally raises questions over their capabilities. However, DRCs were granted such power back in 2011, when the Notice Relating to Delegation of Examination and Approval Authority for Overseas Investment (国家发展改革委关于做好境外投资项目下放核准权限工作的通知（发改外资) was issued by the NDRC.

“Given the flourishing activity in outbound activities, local-level DRCs have had ample opportunities to deal with applications and other administrative matters relating to outbound investments,” said Shi.

Time for clarity

One minor but interesting amendment is that the Measures have added references to natural gas in the definition of resources projects. This is in line with the Chinese government placing more importance on natural gas projects, especially for outbound investments.

Another reform means domestic investors no longer have to obtain a confirmation letter, which was mandatory, from the NDRC before submitting a bid if their investment is less than $100 million. This letter is a requirement when applying for approval of the project at a later stage to the NDRC.

“The NDRC wants to encourage more outbound investment in the hopes of bettering the economy. At the same time, they want to regulate this sector so that the approved outbound investment projects have a solid foundation,” said He.

The Measures are also in response to outdated provisions. “It is time for the NDRC to integrate all of the changes and practices to outbound investment in one set of new Measures, making governance on outbound investment more systematic and time efficient,” said Shi.

The consultation period for the draft Measures ended last week. While the NDRC is strengthening its control on outbound investments, they are also loosening the parameters on the approval process slightly, in the hopes of spurring more deals. It remains to be seen which authority will issue the Measures and how other regulators will respond.

By David Tring

Further reading:

Outbound investment in Russia: Learning from Jinbei's JV

Regulator makes outbound investment easier

Restructuring first for outbound Chinese M&A

Why Chinese companies are using Hong Kong for outbound M&A