[REAL STUFF] The Procedures for Chinese Enterprises Overseas investment and operation （ODI|FDI|）
录入编辑：襄策合规 | 发布时间：2020-07-21Elementary knowledge of cross-border deals
Monica zhang
1. Oversea investment or foreign investment?
Drawing on the "investment development cycle theory" of British economist John Dunning (1981), the propensity of a country to invest in ODI /FDI depends on its stage of economic development and its ownership, internalization, and location advantages. He divided into four stages.
(1) In the first stage, GDP per capita is below $400 (in 1971 dollars), and the scale of attracting foreign investment and oversea investment are both small; FDI= 0, ODI= 0
(2) In the second stage, with per capita GDP between $400 and $1,500, the scale of investment attraction expands, the scale of FDI remains small, and the scale of direct investments surplus keeps expanding; FDI> 0, ODI= 0
(3) In the third stage, the GDP per capita is between 2000-4750 USD, the ODI increases rapidly, and the direct investments surplus gradually converges to equilibrium; FDI> ODI
(4) In the fourth stage, the GDP per capita is above USD 4750, the scale of oversea investment exceeds the scale of foreign investment, and the direct investment turns into a deficit; FDI< ODI.
2. Enterprisesoverseas investment and operation
Nowadays, we often use the terms "oversea" to describe an enterprise going out to seek a better developmental pattern. Going global means that Chinese products, services, capital, technology, labor, management, and Chinese enterprises themselves go to international markets to compete and cooperate abroad.
Enterprises are faced with several options when they are considering an overseas operation or investment:
(1) Should factories "go out", that is, whether to set up factories at home or abroad;
(2) Should Marketing "go out", that is, their own marketing abroad, or entrusted to foreign distributors marketing;
(3) Should Brand "go out", that is, to sell products abroad, with their own brand, or with foreign well-known brands.
There are three main types of modes for enterprises to go out, trade type (products going out), contract type (technology going out), and investment type (enterprises going out).
(1) Trade type (products going out): enterprises produce their products domestically, and the goods and services are exported to the target market. This type is the least risky of all the modes of "going out".
(2) Contract type (technology going out): it is a way to transfer one or several intangible assets to a foreign enterprise by deed without involving equity or corporate property rights, and then charge a corresponding fee, including licensing agreement, franching, management contracts, and turnkey contracts.
(3) Investment type (enterprises going out): there are two main forms of direct participation in the production and management of manufacturers in the target country through equity control: first, investment in new construction (in two ways: joint venture and sole proprietorship); second, international inter-enterprise mergers and acquisitions,acquisitions can enter overseas markets more quickly than new construction.
If there is oligopolistic competition in overseas markets, low production costs or high export costs (transportation costs, import barriers in the target country and the risk of anti-dumping), then in this case many companies use the investment approach to open international markets; if overseas markets are free to compete, production costs are high or export costs are low, many companies will choose trade type or contract type.
3. The motivation for enterprises to overseas markets
The motivation for companies to go to overseas markets can be divided into four categories:
(1) Market-oriented motivation
The purpose of this type of investment is mainly to drive exports of our products and further consolidate, expand and open up markets. By circumventing the restrictions of trade protectionism in the host country through ODI, we can develop the local market by producing and selling locally, or we can shift to invest in production in third countries that are not subject to export restrictions and then export to the place where the original market is located. Or invest in local maintenance services and parts supply outlets to ensure a sales market for the products.
(2) Cost reduction oriented motivation
Using natural resources such as oil and gas resources, coal mines, copper mines, etc., or using production factors such as cheap foreign labor and land to reduce the impact of transportation costs, exchange rate fluctuations; reducing production costs by taking advantage of differences in tariff rates between countries.
(3) Technology and management oriented motivation
The purpose of this type of investment is to acquire and utilize advanced foreign technology, production process, new product design and advanced management knowledge, etc.
(4) Diversification of investment risk-oriented motives
The purpose of such investments is to disperse and reduce the various risks to which the business is exposed.Some companies aim to bypass trade barriers and avoid anti-dumping. Developing countries are at a disadvantage in the market competition with developed countries, one of the reasons is to suffer from various discriminatory policies and trade protectionism of developed countries. Forms of trade protection include traditional trade barriers mainly represented by tariffs, quotas, licenses, and new trade barriers mainly represented by anti-dumping, safeguards, technical standards, etc.Enterprises can avoid trade barriers and reduce risks by investing in countries that have formed free trade zones and producing and selling locally.
4. Destinations for enterprises toOverseas Investment
Overseas investment by Chinese enterprises is mainly determined by the purpose of investment.
Before the "going out" strategy was proposed in 2000, the purpose of ODI was mainly to reduce costs and seek markets, and also to alleviate the problems of large trade surpluses and trade frictions, and most enterprises chose to invest in Japan, Korea and neighboring developing countries.
After joining the World Trade Organization (WTO) in 2001, in search of resources, companies have focused their overseas investments on oil-producing regions and iron ore-producing regions such as the Middle East, South America and Australia.
In the last decade or so, oversea investment with the demand of acquiring advanced technology, etc. has been growing gradually, and most of the enterprises are concentrated in Europe and America.After 2018, countries such as the United States, Australia, Canada, and New Zealand have significantly raised their barriers to investment access, and our investment focus on such has shifted to European countries.
Until the end of 2020, China's enterprises have invested more than US$2.2 trillion in 188 countries and regions around the world, accounting for 80.7% of the total number of countries and regions worldwide.
From a regional perspective, Asia and Latin America have become the regions where our investment is concentrated, with a combined ratio of over 85% and a very high regional concentration of investment.
Investment in Asia is concentrated in Hong Kong, China, mainly because of the same ethnic culture and close connections;
Investments in Latin America are concentrated in the Cayman Islands, British Virgin Islands,primarily a diversionary investment to avoid tariffs;
Investments in Europe and North America are primarily for proximity to host country technology markets;
Investment in Africa is to take advantage of its abundant natural resources and cheap labor;
Investment in Oceania aimed at seeking strategic resources and expanding business network.
5. Overview of enterprises to Overseas Investment
(1) History of Overseas Investment
From the founding of New China to the implementation of the reform and opening-up policy (1978),China's industrial system had just been established, and there were few enterprises with oversea investment.A small number of foreign trade companies set up branches overseas to carry out business in trade, ocean shipping and finance.
From 1980 to 2000, China was still mainly in the stage of "bringing in", and the scale of oversea investment was small, with the accumulated oversea investment less than USD 30 billion.
In 2001, the Chinese government proposed to encourage powerful enterprises to invest overseas and expand foreign trade through overseas processing and assembly, local production and local sales or sales to neighboring countries, driving the export of domestic equipment, technology, materials and semi-finished products.For the first time, "going out" has been elevated to the height of national strategy. Meanwhile, under the background of joining the World Trade Organization (WTO), oversea direct investment has been growing rapidly, and "going out" has entered an accelerated period.
In 2008, under the influence of the global financial crisis, the valuation of overseas assets was lower than before, and the opportunity to "bottom-fishing" overseas came,andChina entered a phase of large-scale overseas investment.During this period, the scale of investment in 2008 was more than the sum of 1980 to 2005.
In 2013, China proposed to build the "the Belt and Road " initiative, which is the cooperation initiative of the "the Silk Road Economic Belt and the 21st-Century Maritime Silk Road ". China's enterprises are rapidly developing their oversea investment.
(2) Enterprise situation
There should be four categories of enterprises making oversea direct investment in China:
① State-owned enterprises
The transnational business activities of Chinese enterpriseswere initially dominated by oversea investment and cooperation of large companies at the level of central ministries,and enterprises belonging to individual provinces and municipalities directly under the central government.
Most of the overseas enterprises established in the initial stage are “window-type” enterprises, with a large number of trade-based enterprises,and their investment fields are mainly concentrated in shipping services, finance and insurance, contract engineering, and the catering industry.Most of the business methods are simple subcontracting, dispatching a small amount of labor, establishing marketing channels, etc.In the later stage, large M&A transactions are the main investment mode, and the investment is more country-specific, mainly in a few fields such as energy, minerals, and raw materials.
② Productive enterprises
The advantages of these enterprises are the right to operate foreign trade;relatively mature production technology and certain research and development capabilities;large domestic production base and sales network in China.These enterprises have obvious competitive advantages in capital, technology, talents, market, management, etc. Although their overseas operation started late, the growth rate is still fast.
③ Financial enterprises
Financial enterprises mainly include banks, insurance, finance, securities, and fund companies. The advantages of such institutions are wide sources of capital, high allocation efficiency, guaranteed investment returns, and a good reputation.
④ Small and medium-sized enterprises
The number of small and medium-sized enterprises in China is large, but they are still relatively cautious in oversea investment, and the total scale of investment is small.
(3) Region
According to the Ministry of Commerce bulletin on oversea investment in the past 20 years, the data show that:
① According to the three regions, west, central, and east, China's eastern region has been active in oversea direct investment;
② Oversea investment activities are mainly concentrated in the Bohai Bay region, the Yangtze River Deltaregion, and the Pearl River Delta region;
③ The top ten cumulative investment city is Guangdong, Shanghai, Beijing, Zhejiang, Shandong, Jiangsu, Tianjin, Fujian, Hainan, and Henan .
④ The Bohai Bay region is rich in resources, with convenient transportation and the closest position to China's energy bases. These resource characteristics determine that the proportion of state-owned enterprises is relatively high, and the oversea investment is mainly resource-based.
⑤ The Yangtze River Delta area is located at the estuary of the Yangtze River, with excellent geographical location and convenient transportation; also, the Yangtze River Delta area has a developed economy, coordinated economic structure, strong industrial base, and good industrial clusters and talent clusters.The oversea investments there are mainly for the market, technology, and resource objectives.
⑥ The business of the enterprises in the Pearl River Delta region is mostly original entrusted manufacture and export, which mainly relies on the labor advantage.Due to the limited area, resource shortage, and higher labor cost, the region has more oversea investment with the goal of gaining market or reducing costs.
Supervision of overseas operations of enterprises
1. Compliance Requirements
China's enterprises oversea business include oversea trade, oversea investment, overseas contracted projects, etc.
(1)Compliance requirements of oversea trade
Enterprises to carry out overseas trade in goods and services, in addition to a comprehensive grasp of trade controls, quality and safety and technical standards, intellectual property protection, and other specific requirements,it is also necessary to pay attention to the trade remedy investigations of the countries or regions involved in the business, including anti-dumping, countervailing, safeguard investigations, etc.
(2)Compliance requirements of oversea investment
The main compliance requirements relate to market access, trade control, national security review, industry regulation, foreign exchange management, anti-monopoly, anti-money laundering, anti-terrorist financing, and other aspects.
(3)Compliance requirements of overseas contracted projects
The main compliance requirements relate to bid management, contract management, project performance, labor rights protection, environmental protection, joint and several risk management, debt management, donations and sponsorships, anti-corruption, anti-bribery, etc.
(4)Compliance requirements of daily oversea operations
The main compliance requirements relate to labor rights protection, environmental protection, data and privacy protection, intellectual property protection, anti-corruption, anti-bribery, anti-monopoly, anti-money laundering, anti-terrorist financing, trade control, financial taxation, etc.
2. Supervisory Bodies
China's foreign exchange is divided into service/trade and investment. Service/trade is directly supervised by banks (under the authority of the Administration of exchange control).The corresponding contracts, invoices, customs clearance documents (goods), etc. are required for the settlement of exchange.
overseas Investment, also known as overseas direct investment by enterprises, is currently regulated by theNational Development and Reform Commission, Ministry of Commerce Of The People’S Republic Of China, State Administration of Foreign Exchange,State-owned Assets Supervision and Administration Commission of the State Council (SASAC) ,China Banking and Insurance Regulatory Commission, China Securities Regulatory Commission (CSRC), etc.
(1) National Development and Reform Commission
The main focus is to review the legality and feasibility of the investment by focusing on the investment project itself.We can see that the main auditing department of enterprises' fixed-asset investment projects in China is also mostly the National Development and Reform Commission.The scope of its supervision includes financial and non-financial enterprises.
(2)Ministry of Commerce Of The People’S Republic Of China
The main point is to review the project from the perspective of overseas enterprises.The Ministry of Commerce Of The People’S Republic Of China issued the Certificate of Enterprise’s Overseas Investment, and we can see that its content mainly reflects the name of foreign enterprises, registered place, shareholder name, shareholding ratio, business scope, investment amount, investment mode, and other corporate information.The scope of its supervision is non-financial enterprises.
(3)State Administration of Foreign Exchange
After 2015, the regulatory authority of overseas direct investment has been delegated to banks. After obtaining the relevant documents, the enterprise finally needs to go to the bank for registration, outward remittance, and inward remittance of overseas direct investment upfront expenses; registration, change, and cancellation of foreign exchange of overseas direct investment; registration of annual overseas direct investment stock interest, etc.The scope of its supervision includes financial and non-financial enterprises.
(4)State-owned Assets Supervision and Administration Commission of the State Council
When an overseas investment involves a state-owned enterprise, the project needs to be approved by SASAC in advance.
(5)China Banking and Insurance Regulatory Commission
Financial enterprises need to obtain a no-objection letter (NOL) before making overseas investments.China Banking and Insurance Regulatory Commission regulates financial enterprises, including commercial banks, policy banks, and financial asset management companies.
(6)China Securities Regulatory Commission
When the project involves matters such as a major asset restructuring or a review of a non-public offering,it will need to be reviewed by the CSRC to ensure that the information can be published in a timely, accurate, and complete manner.Itregulates listed companies.
(1)Changes
From the early days of reform and opening up to the 1990s, during this period, China was at a time when companies lacked experience in international business, so that time, the government adopted a strict examination and approval system for oversea investment activities.When the investment amount of a Chinese company is more than USD 1 million,the project needs to be declared to the National Development and Reform Commission, then approved by it.
In 2004, the Decision of the State Council on Reform of the Investment System was issued by the State Council of the PRC, then the management system of overseas investment which was based on the approval system came into effect in China.Since July 2004, the non-resource development projects which are over $10 million, and the resource development projects which are over $30 million both need to be approved by the National Development and Reform Commission or by the State Council of the PRC;Since February 2011, the non-resource development projects which are over $100 million, and the resource development projects which are over $300 million both need to be approved by the National Development and Reform Commission or by the State Council of the PRC.
Then, policies like The Administration of Approval and Filing of Outbound investment Project, The Administrative Measures for the Outbound Investment by Enterprises, The Code of Conduct for the Overseas Investment by Private Enterprises,andthe Interim Measures for the Filing (Approval) of the Oversea Investment Reportwere successively promulgated from 2014 to 2018.We can see that China has been easing its oversea investment restrictions during this period.In this period, the main management model was the "negative list", and the overseas investment areas and directions were clearly stated in the negative list for the industries that are restricted and prohibited by the state;sensitive category projects need to be approved by the national ministry, and all other projects were to follow the filing system,andthis policy largely facilitated the oversea investment activities of domestic enterprises.
(2)The Present Regulatory Policies (Main)
A. National Development and Reform Commission
① Administrative Measures for the Outbound Investment by Enterprises(2017)
《企业境外投资管理办法》（发改委令【2017】11号）
② Guidance on Strengthening the Construction of Credit System in the Field of Overseas Economic Cooperation (2017)
《关于加强对外经济合作领域信用体系建设的指导意见》（发改外资【2017】1893号）
③ Memorandum of Cooperation on Carrying Out Joint Punishment for the Subjects of Serious Breach of Trust in the Field of Oversea Economic Cooperation (2017)
《关于对对外经济合作领域严重失信主体开展联合惩戒的合作备忘录》（发改外资【2017】1894号）
④ Code of Conduct for the Overseas Investment by Private Enterprises (2017)
《民营企业境外投资经营行为规范》（发改外资【2017】2050号）
⑤ Circular of the National Development and Reform Commission on the Release of the Supporting Format Text (2018 Edition) of the Measures for the Administrative Measures for the Outbound Investment by Enterprises (2018)
《国家发展改革委关于发布企业境外投资管理办法配套格式文本（2018年版）的通知》（发改外资【2018】252号）
⑥ Catalogue of Sensitive Industries for Oversea Investment (2018)
《境外投资敏感行业目录（2018年版）（发改外资【2018】251号）
B. Ministry of Commerce Of The People’S Republic Of China
① Regulations for the Management of Oversea China-Invested Enterpriseand Personnel Security (2010)
《境外中资企业机构和人员安全管理规定》（商合发【2010】313号）
② Notice of Employee management guide for Oversea China-Invested Enterprise (Institution) (2011)
《境外中资企业（机构）员工管理指引的通知》（商合发【2011】64号）
③ Administrative Measures for the Outbound Investment (2014)
《境外投资管理办法》（商务部令2014年第3号）
④ Interim Measures for the Filing (Approval) of the Oversea Investment Report (2018)
《对外投资备案（核准）报告暂行办法》（商合发【2018】24号）
⑤ Detailed Rules for the Supervision and Administration (an oversight model of random inspection and public release across the board) of Overseas Investment and Cooperation (to try out) (2017)
《对外投资合作“双随机一公开”监管工作细则（试行）》（商办合函[2017]第426号）
⑥ Notice of Improving the Paperless Management of Filing (Approval) of Overseas Investment (2020)
《关于完善境外投资备案( 核准) 无纸化管理的通知》（商办合函[2020]82号）
C. State Administration of Foreign Exchange
① Regulations on Foreign Exchange Administration of the Overseas Direct Investment of Domestic Institution
《关于境内机构境外直接投资外汇管理规定》（汇发【2009】30号）
② Circular of the State Administration of Foreign Exchange on Further Improving and Adjusting Foreign Exchange Administration Policies under the Capital Account
《关于进一步改进和调整资本项目外汇管理政策的通知》（汇发【2014】2号）
③ Circular onthe Management of Offshore Investment and Financing and Round-Trip Investment by Domestic Residents through Special Purpose Vehicle ( No.37 [2014] )
《关于境内居民通过特殊目的公司境外投融资及返程投资外汇管理有关问题的通知》（汇发【2014】37号）
④ Circular on Further Simplifying and Improving Policies for Foreign Exchange Administration for Direct Investment
《国家外汇管理局关于进一步简化和改进直接投资外汇管理政策的通知》（汇发【2015】13号）
⑤ Circular of the State Administration of Foreign Exchange on Further Advancing Foreign Exchange Administration Reform to Enhance Authenticity and Compliance Reviews
《国家外汇管理局关于进一步推进外汇管理改革完善真实性合规性审核的通知》（汇发【2017】3号）
D. Others
① Notice of the Ministry of Finance on Regulating Issues Concerning Shareholding by Individuals on Behalf of State-owned Enterprises Investing Overseas
《财政部关于规范国有企业境外投资中个人代持股份有关问题的通知》（财企【2010】24号）
② Circular on Strengthening the Management of Overseas State-owned Property Rights of Central Enterprises
《关于加强中央企业境外国有产权管理有关工作的通知》（国资发产权【2011】114号）
③ Notice of the Ministry of Finance on the Issuance of Certain Provisions on the Management of State Assets in the Reform of Institutions Engaged in Production and Business Activities
《财政部关于印发从事生产经营活动事业单位改革中国有资产管理的若干规定的通知》（财资【2017】24号）
④ Interim Measures for the Supervision and Administration of Overseas Investments by Centrally-administered State-owned Enterprises
《中央企业境外投资监督管理办法》（国资委令【2017】35号）
⑤ Guidance on Further Guiding and Regulating the Direction of Overseas Investment
《关于进一步引导和规范境外投资方向的指导意见》（国办发【2017】74号）
⑥ Decision of the State Council on the Abolition of A Number of Administrative Licenses and Other Matters
《国务院关于取消一批行政许可等事项的决定》（国发[2018]28号）
⑦ Opinions on Guiding the Healthy Development of Overseas Investment and Financing Funds
《关于引导对外投融资基金健康发展的意见》（发改外资〔2018〕553号）
⑧ Financial Administrative Measures for the Outbound Investment by State-owned Enterprises
《国有企业境外投资财务管理办法》（财资〔2017〕24号）
4. Key Points of Supervision
Enterprises should be encouraged to participate in international economic cooperation and competition and to integrate into the global industrial and value chains. Also, the reform (streamline administration and delegate power, improve regulation, and upgrade services) of foreign investment management should be promoted under the guidance of the market and enterprise and follow international practice and government guidance.
Support should be given to enterprises that meet the operation ability and requirements for participating in genuine and compliant oversea investment activities, the development of the Belt and the Road, and international production capacity cooperation. So, cooperation between China and other countries and China's economic transformation and upgrading can then be greatly facilitated.
Chinese regulators are monitoring the tendency of irrational overseas investment in several industries, specifically real estate, hotels, film, entertainment, and sports clubs. Also, the risks in several types of overseas investments are monitored:
(1)huge investments in non-leading industries;
(2)Overseas investment of limited partnership;
(3)When the amount of a company's overseas investment is higher than its registered amount;
(4)Setting up equity investment funds or investment platforms abroad without specific industrial projects.
Sensitive industries | Within the scope of the industries | Not within the scope of the industries |
Setting up equity investment funds or investment platforms abroad without specific industrial projects. | Investing assets or interests, or providing financing, and guaranteesdomestically; setting up equity investment funds or investment platforms abroad without specific industrial projects. | （1）Does not involve domestic investment in assets and interests; does not involve the domestic provision of financing, guarantees, etc.; Equity funds or investment platforms that raise capital entirely from offshore sources； （2）When the domestic financial enterprises have obtained the approval of the domestic financial regulatory authorities to set up equity investment funds or investment platforms abroad without specific industrial projects. |
Real estate | （1）Investing assets or interests, or providing financing, and guaranteesdomestically; development or acquisitions in a residential or commercial project outside of China, and acquisitions in the land used for construction of residential or commercial properties outside of China； （2）Investing assets/interests, or providing financing, and guaranteesdomestically; development/ acquisitions in real estate enterprises outside of China; increasing the investment in overseas an existing real estate overseas enterprise; investment in overseas REITs. | （1）Investment in property management or real estate intermediary service; （2）Development or acquisitions inoffice space, staff quarters, etc. for enterprise-occupied; （3）Investment in infrastructure construction and building development for the real estate industry (industrial parks, science and technology parks, storage and logistics parks, etc. ) ; （4）Construction enterprises' small percentage investment with the purpose of obtaining a construction contract in the projects to be built; （5）Unfinished projects with the approval documents or filing notice from the development and reform department; （6）Does not involve domestic investment in assets and interests; does not involve the domestic provision of financing, guarantees, etc.; Equity funds or investment platforms that raise capital entirely from offshore sources |
Hotels | Investing assets or interests, or providing financing, guaranteesdomestically; development/ acquisitions in star hotels, tourist resorts, business hotels, general hotels, etc. | （1）Investment in the hotel management industry that holds no hotel property assets; （2）Investment in the catering industry without accommodation; （3）Unfinished projects with the approval documents or filing notice from the development and reform department； （4）Does not involve domestic investment in assets and interests; does not involve the domestic provision of financing, guarantees, etc.; Equity funds or investment platforms that raise capital entirely from offshore sources |
Entertainment | （1）Development or acquisitions in oversea indoor recreational facilities (cabaret, electronic amusement hall, Internet cafe, etc.)； （2）Development or acquisitions in oversea amusement parks or theme parks, etc. ; （3）Development or acquisitions in oversea lottery company. | - |
News Media | Development or acquisitions in oversea political news organizations (including news websites), publishing organizations, and radio and television organizations, related to national security. | - |
Film | Development or acquisitions in oversea cinemas or movie theater operators. | - |
Sports clubs | Development or acquisitions in the organizations, institutions, enterprises, etc. that employ (or hire) athletes for sports competition, performance, training, coaching, and management. | - |
Development and utilization of cross-border water resources | the development and utilization of cross-border water (two or more countries) | - |
Research, production, maintenance and repair of weapons and equipment | Development, production, guarantee and maintenance of weapon equipment | - |
5. Cordon of Regulation
(1)Underground Banks
In recent years, the Administration of Foreign Exchangehas been strict in investigating the underground banks.
(2)Oversea Card Swiping
The use of domestic bank cards abroad is regulated according to the merchant category code of use.
① Total ban: If the recipient is involved in gambling transactions or financial institution products, etc.
② Amount limits:If the recipient is involved in insurance, etc.
The Administration of Foreign Exchange and the banks monitor by capturing and analyzing big data in the same system.
(3)QDII channel
A qualified domestic institutional investor or QDII is an institutional investor that has met certain qualifications to invest in securities outside of their home country.Similar to the QDII program is the Qualified Foreign Institutional Investor (QFII) program.They are both transitional institutional arrangements that allow domestic investors to invest in overseas securities markets on a limited basis when the currency is not fully convertible and the capital account is not yet open.
Now the slotting allowances of some QDII institutions amounts to 3% of the exchange funds. And because of the explicit provisions of the use of funds and the direction of Investment, it is illegal to misappropriate the funds for personal house property purchases.
(4)The annual total amount of individual foreign exchange purchasing is USD 50,000 per person per year
People can directly apply through various channels such as bank counters, online banking, self-service terminals, telephone banking, and mobile banking. If the amount of the current account transactions exceeds USD 50,000, it can still be processed at the bank counter with the transaction certificate as long as there is a genuine background.For example, if you are studying abroad, you can apply for the purchase of foreign exchange with your acceptance letter and proof of tuition fees.
Current account transactions include private travel, overseas study, official and business trips abroad, family visits, overseas medical treatment, goods trade,purchase of non-investment insurance and consulting services, etc.
For the capital account transactions, individual oversea investments can only be made through specific channels, like QDII, and it is not allowed toengage inthe capital account transactions by the current account.
(5)Matched Orders
Article 45 of Regulations on Foreign Exchange System of the People's Republic of China (2008) reads: “ if foreign exchange is purchased or sold without authorization, in a disguised manner or in a speculative manner, or if acting as a go-between in the purchase or sale of foreign exchange is engaged in illegally and the amount thereof is relatively large, Exchange Control Authorities shall give a warning, confiscate the illegal income and impose a fine less than30% of the illegal amount. lf the circumstances are serious, Exchange Control Authorities shall impose a fine of not less than 30% and not more than the equivalent of the illegal amount. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.”
(6)Domestic individuals setting up companies abroad as a shareholder
Many Chinese have set up companies in overseas countries and regions such as the Virgin Islands or Hong Kong, some of which in turn have set up foreign-invested companies in China.
It's worth reiterating that although Chinese are allowed to be shareholders in some overseas countries or regions, individual oversea direct investment still not be allowed in China. However, investment in special purpose vehicle is the only exception. For example, if Chinese domestic residents want to invest in VIE-structured companies oversea, they can apply for Registration Regarding Offshore Investments and Foreign Exchange of Individual Domestic Residents and obtain the approval documents at the banks authorized by State Administration of Foreign Exchange.
Enterprise Oversea Investment Compliance Procedures
1. Review Process
(1) Internal Audit
1) Internal Review
① Good credit standing, no illegal behavior record;
② Possess corresponding talents, funds, technologies, R& D and production capacity, and operation& management ability;
③ Oversea regions Due Diligence.
2) Internal Decision
① Decision-making meeting;
② Property assessment, and filing theassessment results;
③ Feasibility assessment, deliberations in accordance with internal decision-making procedures, and the formation of written resolutions
(2) Government Review
① Confirmation of investment subject;
② Target country, industry and the amount of investment;
③ Approval document or the filing notice;
④ Submission of application document;
⑤ Documents for project approval (or notice of filing)
⑥ Project completion report
1) National Development and Reform Commission (only focus on the compliance of project )
a) Verification and approvalsystem
The investment subject carries out the sensitive project (involving sensitive countries and regions, or sensitive industries) directly or through an oversea enterprise controlled by it, and the project is approved by National Development and Reform Commission.
b) Record-filing system
Projects subject to filing are non-sensitive projects.
For a project requiring filing, the authority in charge of filing is (i) NDRC, if the investor is a centrally administered enterprise (a centrally administered financial enterprise or an enterprise directly subordinate to the administration by the State Council or its subordinate organ, the same below); (ii) NDRC, if the investor is a local enterprise and the amount of Chinese investment is USD 0.3 billion or above; and (iii) the provincial development and reform authority at the place where the investor is registered, if the investor is a local enterprise and the amount of Chinese investment is less than USD 0.3 billion.
c) Reporting system
Where an investor launches a large-scale non-sensitive Project through an overseas company under its control, it shall submit a report form on the large-scale non-sensitive Project through the Network System prior to the implementation of the Project, in order to inform NDRC of the relevant information.
A large-amount non-sensitive project refers to a non-sensitive Project wherein the Chinese investment amounts to USD 300 million or above.
d) Others
Where an investor launches a non-sensitive Project below USD 300 million through an overseas company under its control, there isno filing procedures or reports required.
2) Ministry of Commerce Of The People’S Republic Of China (focus on the oversea enterprises)
a) Verification and approval system
The oversea enterprises which involving sensitive countries / regions, or sensitive industries.
b) Record-filing system
The MOFCOM and Provincial Competent Commerce Departments shall conduct administration over the outbound investment by Enterprises via the Outbound Investment Management System, and issue the Certificate of Outbound Investment by Enterprises to Enterprises that have obtained record-filing or approval upon verification.
Where an Enterprise fails to make any investment overseas within two years after obtaining the Certificate, its Certificate shall automatically become invalid. The Enterprise shall go through record-filing or apply for verification and approval again according to the procedures prescribed in this Chapter if it still needs to make outbound investment.
c) Re-investment overseas report
Where the overseas enterprise invested by an Enterprise makes re-investment overseas，the Enterprise shall report relevant information to the relevant competent commerce department after the completion of legal formalities overseas.
3) State Administration of Foreign Exchange
After obtaining the approval above, apply to the bank where you are registered for foreign exchange registrationof overseas direct investment.
4) An Enterprise shall report with the relevant Chinese embassy(consulate)(division/office of economy and commerce) abroad after registration or merger.
2. List of documents
(1)State-owned Assets Supervision and Administration Commission of the State Council
Investment project application approval report;
Project feasibility report or expert opinion letter;
Enterprise's recent financial report;
Investment agreement;
Briefing and certification materials of the project partners ( approved projects) ;
Other relevant materials ( approved projects).
(2)National Development and Reform Commission
Oversea investment project filing application form (generated by the system);
Investment subject registration documents;
Equity structure of investment subject traced back to the ultimate actual controller;
Latest audited financial statements of investment subject;
Investment subject investment decision documents;
Legally binding agreements;
Supporting documents for the legalization and authenticity of source of funds;
The letter of commitment on the authenticity of oversea investment;
Project verification and approval documents;
Project approval report.
(3)Ministry of Commerce Of The People’S Republic Of China
Oversea investment filing form (generated by the system);
Oversea enterprise bylaw (contracts, agreements);
Board Resolution or capital contribution resolution;
Description of the implementation of the previous work:
① Due Diligence（M & A and acquisition projects）
② Feasibility study report
③ Source of Funds Statement
④ Investment environment assessment
…;
Preliminary report form for outbound M&A matters;
The letter of commitment on the authenticity of oversea investment;
Project application (approved projects).
(4)State Administration of Foreign Exchange
Application form for foreign exchange registration concerning oversea direct investment;
Business license;
Approval document or filing notice Filing issued by the National Development and Reform Commission;
enterprise overseas investment certificate (non-financial enterprise) issued by Ministry of Commerce Of The People’S Republic Of China;
Approval document or no objection letter issued by relevant authorities (financial enterprise);
Proof of source of funds for oversea investment, fund using plan,board resolution (partner resolution),contract, and other authenticity proof materials;
If foreign investors acquire a domestic company with foreign equity, resulting in the domestic company or its shareholders holding equity in the foreign company,it is also necessary to provide the approval certificate(for foreign-invested enterprises established after October 8, 2016, provide the "Foreign-invested Enterprise Establishment/Change Record Return") and business license of the foreign-invested enterprise;
Other authenticity proof materials.
3. OtherPoints for Attention
(1)The design of the project framework: involving the oversea investment subject and the design of project framework;
(2)Domestic companies should be established for more than 1 year and have business; the enterprises established for less than 1 year are better to have a reasonable overseas investment and an endorser.
(3)It is recommended to prepare a more detailed feasibility study of the overseas investment project and the investigation reports on on various aspects such as legal, financial and business.
(4)The statement of the use of funds;
(5)The statement of the legitimacy of the entire funding source.
