2014 marked a turning point in the Chinese economy, where for the first time capital flows out of the country equaled foreign direct investment inflows. On this macroeconomic basis and in the light of further deregulation promoted by the Beijing authorities, 2015 promises to further increase the trend of growth which -thanks to the special attention Milan’s EXPO 2015 will be able to generate in the Italian market- will offer an attractive growth opportunity for Italian companies. However, in order to be able to relate to these operators, it is preferable to also have an approximate knowledge of the legal regime within which they operate, in order to manage and prevent any problems when handling the operation.
If, in fact, the increased attention of Chinese operators towards the global market, the great liquidity provided by several years of economic growth and the incentive policies of the Government of Beijing are the main drivers of this change, the process of authorization / pre-registration of foreign investment remains up to now one of the main limitations of these operations.
In the past, the authorization process required from a company before it could finalize an investment overseas involved three different authorities: the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM) and the State Administration of Foreign Exchange (SAFE); which was a sort of obstacle course, with no certainty neither from a substantive (obtainment requirements), nor procedural (timing) point of view.
The deregulation process which has been implemented for several years now and specifically the reforms undertaken between the end of 2014 and the first months of 2015, concerns each step of the authorization of the investment, with the shared goal of removing, simplifying and shortening the required time and procedures.
- NDRC: Project Verification and Record-Filing
The “Administrative Measures for the Verification and Record-filing on ODI Projects” in force since 8 May 2014 (“No.9 Regulation”) already established a registration procedure and not an actual analysis and evaluation of the operation for minor investments which did not fall in strategic sectors. Through the change which came into force on 27 December 2014, this type of registration procedure will be applied on a general scale, limiting the need for prior approval only to cases where the target of the investment is a so called sensitive country, area or industry; the amount exceeds $ 2 billion; or in the case of tendering or acquisition which implies an investment by a Chinese company exceeding $ 300 million.
- Mofcom negative list
The spirit of the reform was adopted also by the Ministry of Economy, which, through the “Administrative Measures for Outbound Investments”, in force since 6 October 2014, also establishes a registration procedure applicable on a general scale and limits the need for prior authorization to some cases expressly contained in a negative list (eg. jeopardizing national sovereignty or security; harming the relationship between China and the relevant country; etc). Furthermore, and equally relevant, the new regulation provides the possibility of undertaking the procedure at the MOFCOM, at the same time as the registration procedure at the NDRC, without having to wait until the end of the previous stage, and thus reducing significantly the time needed to finish the entire procedure.
- State Administration Foreign Exchange
Finally, through a memorandum issued on 28 February 2015 with entry into force planned for 1 June 2015, the State Administration of Foreign Exchange has renounced its authorization powers in certain areas, preferring to delegate credit institutions to control the transfer abroad of the funds needed for the investment.
In this case we are not yet able to predict what will be the nature of the screening and, as with any reform, an initial trial period may be expected, but once it will be fully operational, benefits for investors appear to be obvious.
In conclusion, overseas Chinese investments now play a vital role not only on the agenda of the various countries which may become potential recipients, but also on the agenda of the Chinese legislator who is giving proof of continuing its policy of incentives, by supporting and facilitating the increasing number of operations. The ability to relate to this new trend may be a new call for Italian companies and an opportunity to strengthen the global market.
(Shanghai Office – Luigi Zunarelli – 00862151501952)
