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LEGAL: PRC Foreign Investment Regulations
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PRC Foreign Investment Regulations

By Manual Torres (Managing Partner of Garrigues Shanghai) & Lucy Luo(Associate of Garrigues Shanghai)

BT 201507 18 Legal 001There have been some recent changes to the PRC foreign investment regulations. They cover project approval, investment approval and foreign exchange control sections. In the first of a three part series, this month, we take a look at the issue of project approval.

Under the PRC laws and regulations, there are three main procedures regarding foreign investment administration, they are, Project Approval and Record Filing, this procedure is optional to those investments involving fixed assets, for example, real estate. Foreign investors that want to invest in these projects in China must obtain prior approval or file relevant information for record purposes from the government. After obtaining project approval the foreign investment must then be approved by the Ministry of Commerce or its local counterpart. Upon approval by MOFCOM, the foreign investment company can then apply for commercial registration from the State Administration of Industry and Commerce. Although RMB is on its way towards internationalization, foreign exchange control on both capital and current accounts is still applicable. Therefore, the foreign investment company shall have to apply for a foreign exchange registration from the State Administration of Foreign Exchange to record the cross border transaction.

BT 201507 15 Legal HL01Project Approval and Record-Filing
As we have mentioned before, project approval and record filing is optional. The scope and requirements are set by relevant laws and regulations.

The main laws and regulations governing Project Approval and Record Filing are:

- Catalogue of Investment Projects Subject to Government Approval
Since 2004, the State Council of the PRC has released several versions of the Project Approval Catalogue. The latest version was released and took effect on October 31st, 2014. The Project Approval Catalogue lists all projects subject to governmental approval and details the respective limitations and approval levels.

- Catalogue for the Guidance of Foreign Investment Industries
The Foreign Investment Industries Catalogue is the officials set of guidelines for foreign investment in China. It sets the scope of the projects subject to the project approval procedure. The latest version took effect on April 10th, 2015.

- Administrative Measures for Approval and Record-filing of Foreign Investment Projects
The Foreign Investment Project Approval Measures stipulated by the National Development and Reform Commission provides detailed approval and recordable administrative procedures and requirements for foreign investment projects. It replaces the previous trial version and took effect on June 17th, 2014.

BT 201507 17 Legal multilateral diplomacyAt the State level, approval and record filing authorities are the State Council, NDRC (National Development and Reform Commission) and relevant industry management departments of the State Council. Provincial level governments and local governments are in charge of projects approval and record filing.

The general approval principles are outlined by the Project Approval Catalogue. There are some exceptions set by the Foreign Investment Industries Catalogue.

The approval level is based on the nature of the project and its investment volume. In general, for encouraged foreign investment projects requiring Chinese control, the NDRC is in charge of projects where the total investment is more than 1 billion USD, while local government is in charge of projects where the total investment is less.

For restricted foreign investment projects, if the total investment is more than100 million USD, it is subject to the NDRC's review and approval. Other restricted foreign investment projects shall obtain project approval from local governments where the projects are located.

If the level of approval authority stipulated by the Project Approval Catalogue and the Foreign Investment Industries Catalogue are different, the higher level approval authority shall prevail.

The threshold will be updated by the NDRC, therefore, we highly recommend foreign investors check the up-to-date threshold in advance.

The Project Approval Catalogue says nothing on the Record Filing procedures, specific implementation measures shall be formulated by provincial governments. Based on our experience, the rules surrounding the project record that are applicable to domestic companies will apply to foreign investment companies.


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