Professional Interpretation

Abstract:

B.Streamlining and Improvement in Procedure
a.Abolish the "project information report" regime
Under the Order No. 9, domestic companies which invest USD $300 million or more in any outbound M&A or bidding project, shall submit a project information report to, and obtain a confirmation letter (also known as the "Road Pass") from, the NDRC before conducting any substantive work abroad (i.e., entering into a binding agreement, submitting a binding offer or filing an application with the regulators in the host jurisdiction).
The New Rules repeal the "Road Pass" requirement to streamline the administrative procedure and to reduce institutional transaction costs.
b.Push back the deadline for completing the approval or record filing process
The previous rules require that domestic investors shall obtain an approval document or filing notice from the NDRC before the signing of a binding agreement in any outbound investment project that is subject to the NDRC's approval or record filing requirement, unless the investment agreement expressly states that the completion of the approval or record filing process is a condition of the effectiveness of the investment agreement.
The Order No. 11 extends the deadline for obtaining the approval document or filing notice to "before the implementation of the investment", i.e. closing of the transaction. It prescribes that such government approval or filing notice will not be required until the domestic investors or the offshore entities controlled by them start to contribute assets or interests or to provide finance or security to overseas projects. This will enable domestic buyers to set obtaining government approvals or filing records as a condition to closing the transaction, which is consistent with international best practice.
c.Simplify the submission process
According to the previous rules, if any domestic investor (excluding enterprises managed by the central government) conduct an outbound investment project that is subject to the NDRC's approval or record filing process, the application documents should first be filed with the provincial-level NDRC, and the provincial-level NDRC shall review the application and then further submit it to the NDRC along with its review opinion.
The New Rules allow non-SOE domestic investors to submit such application documents to the NDRC directly through the "management and service network system of outbound investment" established by the NDRC, which will speed up the administrative procedure and bring more certainty to the NDRC's approval or recording filing process.
Extended period of validity of approvals or filing documents.The NDRC's approval document or filing notice under Order No. 9 is normally valid for two years in the case of construction projects and one year for other outbound investment projects. The New Rules extend the validity of an issued approval document or completed filing notice to two years for all OUTBOUND INVESTMENT projects. This will give domestic investors more flexibility to implement their overseas investments. In addition to the major changes listed above, the New Rules also expressly prescribe that outbound investments implemented by domestic financial enterprise are required to comply with the NDRC's requirements under Order No. 11.

C.Strengthening Overall Supervision
Significant adverse event report. When an outbound investment project, whether undertaken by a domestic investor or a controlled foreign entity, experiences a significant adverse event (such as significant injury or death of employees, significant asset losses, or harm to China’s foreign relations with the related country), the New Rules require the Domestic investor to report such event to NDRC within five business days thereof.
Closing report. The New Rules also require outbound investors, in all projects that undergo record-filing or verification and approval, to submit a closing report within 20 business days following the closing of such projects.
Liability for investors and financial institutions, including their responsible persons. The New Rules provide that outbound investors and their “responsible persons” will face penalties and potentially criminal liability for “malicious” inaccuracies in applying for approval, obtaining an approval or record-filing notice through fraud or bribery, engaging in projects without an approval or record-filing notice (when required), failing to provide required reports, unfair competition, or harming national security. In addition, financial institutions and their responsible persons may, based on consultations with applicable regulators, be punished for providing financing or a guarantees to projects prior such projects completing record filing and approval (when such procedures are required).
New supervisory tools. The New Rules instruct NDRC and its provincial counterparts to establish new means to supervise outbound investment, including online supervision, face-to-face meetings, written inquiries, and random verification.

D.Conclusion
In general, the Order No. 11 cancelled and streamlined the previous procedures that were not in conformity with international practice, added provisions to facilitate outbound investments and satisfied the evolving need of domestic entities in overseas investment. 
However, the Order No. 11 has overall strengthened regulation instead of relaxed it. In accordance with current practice, the NDRC theoretically administers recordation on non-sensitive projects, but in fact undertakes the substantive examination rather than formality examination. As the Order No. 11 has reserved the full direction for the NDRC, impact of the New Rules on future outbound investment activities remains to be seen.