China’s new restrictions on outbound investments

HONG KONG - China is strengthening its regulatory practice with respect to the outflow of overseas investment funds, and  restricting domestic enterprises from making irrational or risky overseas investments, lawyers Baker & McKenzie warn in a Client Alert. “Although we have yet to see a formal, unified approach, we have seen regulators closely examining overseas investments for authentic investment transactions and for strict compliance with all related rules and regulations,” the Alert says.

B&M says China's foreign exchange reserves experienced a rapid, short-term drop during the second half of 2016, the suspected causes including people selling renminbi to avoid depreciation from the falling RMB exchange rate and Chinese enterprises increasing their overseas M&A activities.

“The Chinese Government is particularly concerned with the role played by irrational investment trends and other unusual conduct from Chinese enterprises going global,” it adds.

“To date, no unified, formal regulatory documents have been issued to guard against cross-border capital flow risks and to effectively maintain stability in the foreign exchange market.

“Nonetheless, since November 2016 regulators such as the People's Bank of China, the State Administration of Foreign Exchange, the National Development and Reform Commission and the Ministry of Commerce have repeatedly and publicly expressed their requirement for steps to be taken to guard against overseas investment risks.

“In practice, regulators have quietly started experimenting with regulatory measures to control large outward remittances of foreign exchange.”

The Client Alert says Chinese authorities reaffirmed their  commitment to examine the authenticity and compliance of overseas investments at a press conference November 28, 2016, at which leading officials of the NDRC, MOFCOM, the PBOC and SAFE answered questions on current overseas investment trends and overseas investment policies.

“They noted that China would keep the current recordal system as the main method for administering overseas investment and would simplify overseas investment on the one hand while guarding against overseas investment risk on the other.

“At a press conference held on December 6, 2016, leading officials from those four authorities explained that China supports authentic and compliant overseas investment from capable and qualified Chinese enterprises.”

These officials had noted that the Government is paying close attention to:

? irrational overseas investment trends emerging in areas such as real estate, hotels, cinemas, the entertainment industry and sports clubs;  and

? potential overseas investment risks posed by large overseas investments outside the investors' main line of business, overseas investments by limited partnerships, overseas investments by small parent companies with large subsidiaries, overseas investments by enterprises established hastily or rushing to go global.

B&M says MOFCOM has strengthened authentication of overseas investments by requiring the submission of additional documentation during the filing and approval process, with a notice published on its website on December 2, 2016.

On December 5, 2016, the NDRC strengthened authentication requirements of overseas investments by revising the format of the overseas investment information report. A notice published on its website revises  the reporting requirements for overseas acquisitions and bidding for projects.

Meanwhile, the PBoC has strengthened regulations covering overseas renminbi lending by domestic enterprises.

Further information from B&M offices in Beijing or Shanghai.  www.bakermckenzie.com, www.fenxunlaw.com , www.bakermckenzieziefenxun.com (ATI).