China Issues Further Guidance on Outbound Investment

On 18 August 2017, the National Development and Reform Commission (“NDRC”), Ministry of Commerce (“MOFCOM”), People's Bank of China (“PBOC”) and Ministry of Foreign Affairs (“MFA”) jointly issued the Notice of Guiding Opinions to Further Guide and Standardise the Direction of Outbound Investment, which took effect 4 August 2017.

The guiding opinions reflect China's interest in continuing to promote targeted outbound investment, while curbing speculative and risky investment projects and investment in sensitive industries and regions.

Specifically, the guiding opinions:

  • Restate China's policy preferences for outbound investment, including standardising the record-filing, plus negative list administrative system.
  • Encourage outbound investment in infrastructure that furthers China's "Belt and Road" initiative, and trade, culture, logistics, finance and other service sectors.
  • Restrict outbound investment in real estate, hotels, film studios, entertainment, sports clubs, and equity investment funds or investment platforms without a specific industrial project, and so on.
  • Prohibit outbound investment involving the export of core military technology and products without government approval, gambling and sex industries, and so on.

The guiding opinions also issue a call to safeguard outbound investment by:

  • Adhering to the encouraged, restricted and prohibited classification system outlined above.
  • Perfecting administrative mechanisms through inter-departmental information sharing, blacklisting offenders, and so on.
  • Improving service levels, in part by developing service intermediaries.
  • Strengthening security and contingency planning.

Market Reaction

Ren Gulong, Partner, Anjie Law Firm, Beijing

"The guidelines are significant to the healthy development of outbound investment by eliminating market concerns on the government's intent to limit outbound investment, clarifying the direction of outbound investment, and improving the regulation of outbound investment. The guidelines clearly support further outbound investment by qualified investors in useful projects. At the same time, the guidelines call for third party service providers, including legal, tax, design consulting, risk assessment, security and other intermediary services, to minimize the risks inherent in outbound investment. It is foreseeable that outbound investment will continue in a rational and stable way going forward."

Action Items

General Counsel for domestic companies investing in businesses or acquiring assets outside China (or for foreign companies partnering with a Chinese investor) should consider the policy behind the guidelines and in some cases prepare for a more stringent government approval process. Counsel for service providers may wish to alert government relations colleagues of any opportunities for growth presented by the guidelines.