China Issues New Guidance for Outbound Foreign Investment

China Issues New Guidance for Outbound Foreign Investment


On 26 December 2017, the China National Development and Reform Commission, the NDRC, released the “Corporate Overseas Investment Management Measures”, known as Order 11. There are some welcome changes that should hopefully lead to greater investment in the encouraged areas of the market.

The technicalities

Order 11 will replace the existing Order 9, and will take effect 1 March, 2018. Order 11 implements the guidance issued in August 2017 by China’s State Council (essentially China’s Cabinet) on overseas investments by Chinese entities.

The NDRC is the agency that has broad administrative and planning control over the Chinese economy. The NDRC’s functions are to study and formulate policies for economic and social development, maintain the balance of economic development, and to guide the restructuring of China’s economic system.

August 2017 Guidance – encouraged, limited and prohibited investments

The August guidance grouped investments into categories that are to be ‘encouraged’, ‘limited’ and ‘prohibited’ and is discussed here.

Order 11

The key differences between Order 11 and Order 9 are discussed below, and in summary, Order 11 has, on one hand broadened the range of transactions that fall under the NDRC’s processes, but has simplified the process and approval requirements for Chinese Investors aligned with commercial realities.

Order 11 applies to foreign investment activities made either by Chinese based entities directly or via overseas entities under their control, for example a subsidiary in Hong Kong.

  1. Order 9 only applied to China based entities.
  2. Order 11 will now apply to investments made by Chinese controlled foreign entities, although the approval process is different from that applying to China based entities.

Currently Chinese outbound investors are required to receive approval from the NDRC for investments greater than US$300m prior to commencing any substantial work on the investment. This approval requirement is now eliminated under Order 11. This will save time and costs, and will allow Chinese investors to participate freely in bidding situations that were problematic before.

Currently, Chinese outbound investors are required to have NDRC approval prior to entering into final and legally binding Investment Agreements, such as a Sale & Purchase Agreement (“SPA”).


The timing for obtaining this approval has now been changed, such that the approval is only required prior to the project being ‘implemented’, i.e. when the actual payment of funds to an offshore seller or to an offshore project occurs.

Note: It will be important for Chinese Investors to make this a ‘condition precedent’ to the transaction. This is more in line with commercial practice and will solve the current difficulties of Chinese Investors entering into legally binding SPA’s.

Not on the Sensitive List

Importantly, Order 11 abolishes this approval process for overseas investment projects not on the sensitive list.

  • Non-sensitive projects need to be reported to the NDRC only for Central Government managed State Owned Enterprises (“SOE’s”) (China has approximately 150,000 SOE’s, of which around 50,000 are owned by the Central Government and the remainder by Local and Provincial governments.  The Central Government also directly controls and manages 102 strategic SOE’s through the State Assets Supervision and Administration Commission (“SASAC”)), or for Locally / Provincially owned SOE’s with an investment value over US$300 million.
  • If the investor is a Local or Provincial SOE, and the amount of investment is less than US$300 million, the reporting authority is not the NDRC, but the Development and Reform Department of the Provincial Government at the place of registration of the SOE.

This is a welcome change and should lead to greater investment in the encouraged areas in the market.

On the Sensitive List

The old approval process however remains in place for projects on the sensitive list, for sensitive industries, or is in sensitive countries, that is:

  • Countries are at war
  • Do not have diplomatic ties with China
  • Where investment is restricted by international treaties or agreements China has signed

The NDRC has produced a list of these sensitive areas. Investment into these areas will dry up significantly and include investments into:

  • Media
  • Real estate
  • Hotels
  • Movie studios
  • the entertainment industry
  • Sports clubs
  • Equity investment funds

Saving time and costs with online approvals and reports

Previously, reviews by Provincial authorities were also required for certain investments.  These Provincial Reviews have been eliminated and will all now fall under the NDRC. This will save time and costs, and in keeping with this theme, Order 11 also tasks the NDRC with establishing an online platform for these approvals and reports, and shortens approval times.

Order 11 now requires the Chinese investor to report any significant adverse events, in relation to their operations in a foreign country, to the NDRC within 5 days of the significant adverse event (e.g. significant injury or death of employees, significant asset loss, or harm to China’s foreign relations with the related country). Order 11 also increases the NDRC review procedure and penalties for breeches of the rules.


Order 11, together with the August 2017 announcement will provide Chinese Investors, and their foreign counterparties, with greater transparency and certainty over the approval process that has been simplified and aligned to commercial reality.

In all, this is good news for Chinese outbound investment from 1 March 2018.

InvestmentOn the “Sensitive List”Not on the “Sensitive List”
By a Central Government owned SOEApproval RequiredNo approval required, just reporting to the NDRC
By a Locally / Provincially owned SOE greater than US$300mApproval RequiredNo approval required, just reporting to the NDRC
By a Locally / Provincially owned SOE less than US$300mApproval RequiredNo approval required, just reporting  at the local / provincial level

If you would like more information or have any queries, please contact David Chu.

David Chu

E [email protected]

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