Regulatory Procedures of Outbound Transactions by Chinese Investors

Table of Contents

Chapter I Introduction

Chapter II The “Going Out” Strategy in Detail
2.2.1 Cross-Border Direct Investments in Renminbi
2.2.2 Cross-Border Securities Investment

Chapter III The PRC’s Regulatory Procedures for Outbound Investments
3.1 Historical Background
3.2 Reasons for the Regulation of Outbound Investments
3.3 Description of the Approval / Filing Procedures
3.3.1 State Council / National Development and Reform Commission (“NDRC”)
3.3.2 Ministry of Commerce (“MOFCOM”)
3.3.3 State Administration of Foreign Exchange (“SAFE”)
3.3.4 State-Owned Assets Supervision and Administration Commission (“SASAC”)
3.3.5 China Securities Regulatory Commission (“CSRC”)
3.3.6 Rules on Outbound Direct Investment for Natural Persons
3.3.7 Further Provisions / Industry-Specific Rules for Outbound Direct Investment

Chapter IV Pros and Cons of the Chinese Regulatory System

Chapter V Summary and Conclusion

Annex 1

Annex 2

Annex 3

Annex 4

Abbreviations

Abstract

Together with the economic rise of China in recent years and its new role of a leading economic power in the world, the investment activities of Chinese companies abroad has gained tremendous importance and is an essential factor for international competitiveness. But the performance of outbound direct investments underlies an unique regulatory system according to Chinese law which is characterized by a wide range of legal provisions and a variety of different authorities. This often results disadvantages for Chinese companies in bidding procedures compared to Western competitors. However, the Chinese government has recognized, in recent years, the increasing importance of outbound direct investments for China's economic position, and changed the regulatory system, which existed for over 30 years, in a significant way. The purpose of this thesis lies in analyzing the current regulatory system, identifying the progress noted in comparison to the former regime, elaborating the pros and cons and giving improvements for the future.

KEYWORDS: Outbound Investment; Going Out Strategy; Regulatory System; NDRC; MOFCOM

Chapter I Introduction

“We should actively open up to global markets, promote diversity in foreign trade, and develop an export-orientated economy. … We must actively expand Chinese enterprise’s foreign investments and transnational operations.”^[1] With these words, Jiang Zemin, former Secretary-General of the Communist Party of China, described in October 1992 what is nowadays known as “Going Out” strategy (走出去战略). Jiang Zeminexplained and clarified the idea of transforming China’s economy in an export nation on several further occasions.^[2]

Put in a nutshell, the “Going Out” strategy can be qualified as political approach of the Chinese government to encourage and to control oversea investments of domestic enterprises. Together with the China Council for the Promotion of International Trade (CCPIT),^[3] the Chinese government initiated in 1999 several schemes to assist domestic entrepreneurs in developing and improving a global strategy to take opportunities in expanding local and international markets. However, the result of the “Going Out” strategy was not to grant domestic companies greater freedom in foreign business actions, rather than to implement a regulatory system which allows the Chinese government to monitor and review every single outbound investment and the outflow of the Chinese currency.

The focus of this thesis lies on the mentioned regulatory system provided by the Chinese law regarding outbound transactions of Chinese investors.^[4] For a better understanding of the Chinese regulatory system, the historical background and reasons of regulating outbound investments by the Chinese government will be examined. Afterwards a detailed explanation of the regulatory framework, including an overview of the required filing and approval proceedings follows. Another important aspect of the analysis concerns the comparison of the current with the former legal system, and the reasons why changes have been made. In conclusion, the advantages and disadvantages of the Chinese regulatory system for out bound investments will be shown.

Chapter II The “Going Out” Strategy in Detail

China’s current outbound mergers and acquisitions (M&A) activity was steadily increasing the last five years and currently reaches a peak.^[5] Last year, the media reported on mega deals like the acquisition of the tire maker Pirelli by the China National Chemical Corporation (transaction value: est. USD 7.7 billion),^[6] the purchase of the lighting division of Philips by Go Scale Capital(transaction value: est. USD 3.3 billion),^[7] or the complete takeover of Iron Mining International (Mongolia) by Zhongrun Resources Investment Corporation (transaction value: est. USD 1.935 billion).^[8]

In 2015, the total of worldwide Chinese investments and contracts amounted USD 193.69 billion.^[9] In the next decade, current President Xi Jinping foresees China’s outbound investment to reach USD 1.25 trillion.^[10] From the investment amount in 2015, the biggest investments were carried out in Sub-Saharan Africa (USD 36.4 billion), East Asia (USD 35.82 billion)^[11] and Europe (USD 35.13 billion). The sectors energy (USD 55.03 billion) and transport (USD 50,61 billion) are by far the most popular areas Chinese companies invested in 2015.^[12]

The reasons for the increasing number of M&A outbound transactions are various.^[13] The global downturn created cheaper valuations of overseas targets and China, as the world’s top holder of monetary reserve, takes the opportunity to diversify its portfolio. On the other hand, economically distressed countries are seeking for strong investors to cover its capital requirements and reduce unemployment. Besides that, the increasing pressure of competition on the more and more saturated domestic market lets Chinese investors look for opportunities in other – higher as well as less developed – markets.^[14] Further, Chinese companies are moving up the value chain and start internationalizing their operations and strategies to become competitive on a global scale. But the increasing amount of outbound activities would not be possible without the Chinese government’s efforts in modernizing and relaxing its regulatory system.^[15]

2.1 Political Background of the “Going Out” Strategy

The “Going Out” strategy was formally proposed during the Third Session of the Ninth National People’s congress and finally approved by the Fifth Plenary Session of the 15th National Congress of the Communist Party of China in October 2000.^[16] The new strategy was also mentioned in the Tenth Five-Year Plan (2000-2005), it was incorporated in the Eleventh Five-Year Plan (2006-2010), and it is still stressed as one priority in the current Five-Year Plan (2016-2020).^[17] From a political point of view, the “Going Out” strategy was one of the four new strategies that should shape China’s plan for global economic integration and also provide momentum to China’s pursuit of WTO accession which succeeded in 2001. The other three strategies which China’s government forwarded alongside “going out” were the Western development strategy (西部大开发), the urbanization strategy (城镇化战略), and the talent strategy (人才 战略).^[18]

The “Going Out” strategy received fresh impetus by the “Silk Road Economic Belt” and the “21st Century Maritime Silk Road” policy (also known as “One Belt, One Road” policy) which help Chinese companies to continue and expand their global investment journey, in particular by improving the infrastructure and interconnection between China and European as well as other Asian countries.

The political motives for the implementation of the “Going Out” strategy are diverse.^[19] It can be seen as reaction to the global economic development and China’s will to become a “global player” besides the U.S. and European countries. Entering international markets provide different opportunities, such as easier access to advanced technologies and know-how, or a better protection against impacts of economic crisis on the domestic market. By supporting investments abroad, the Chinese government wants to expand the space for national economic development and to promote domestic products. Supporting investments in foreign countries can also supplement the enormous (natural) resources China needs and encourage the export of goods and services. Further, the growth of Chinese multinational corporations and well-known brands helps to achieve the diversification of products and origin on the host country’s market which alleviates trade frictions.

2.2 Developments in Cross-Border Renminbi Investment and Financing

2.2.1 Cross-Border Direct Investments in Renminbi

In the last years, the Chinese government intensified promoting outbound investments by Chinese companies and pushing the internationalization of China’s own currency (RMB). The legal framework was created in January 2011, when the People’s Bank of China (PBOC) issued the Pilot Administrative Measures for Trial Program of RMB Settlement for Out bound Direct Investment.^[20] Regarding inbound investments, the MOFCOM and the PBOC released in October 2011 new rules formally permitting foreign direct investment utilizing offshore RMB that had been obtained using legitimate channels.

Art. 2 of the POBOC Measures allows a qualified domestic company^[21] to make direct outbound investments in RMB. The POBOC Measures cover outbound direct investments such as the establishment of a new offshore enterprise or the acquisition of all or part of the ownership, controlling rights, or operational rights of an offshore enterprise. The governmental approval procedures including foreign exchange control for outbound direct investment in RMB are similar to those for outbound direct investment made in other currencies. For example, if the required Chinese governmental approval for an outbound investment is not obtained within six months after arising costs in RMB of the project have been remitted out of China, the domestic company has to remit the remaining offshore RMB funds back to the original domestic bank account, cf. Art. 11 of the POBOC Measures.

2.2.2 Cross-Border Securities Investment

The ongoing simplification of capital account controls and the RMB internalization by the Chinese government is also shown in the so-called Renminbi Qualified Foreign Institutional Investor(R-QFII) program which was initiated by the China Securities Regulatory Commission (CSRC) and the State Administration of Foreign Exchange (SAFE) in December 2011. This implemented trial regime permits qualified overseas institutional investors to buy RMB-denominated A-shares in the Shanghai and Shenzhen stock exchange markets within a permitted quota.^[22]

Alongside the growth of cross-border trades settled in RMB, a large volume of RMB has accumulated outside of mainland China. Primarily, only Hong Kong has been developed as an offshore center for RMB-related business, due to its geographic proximity and strong trading relationships with the mainland.

Finally, in November 2015, China’s government was rewarded for its efforts in reforming the monetary and financial systems, when the Chinese RMB became officially a world reserve currency, meaning it is widely used to settle international transactions and widely traded in foreign exchange markets.^[23] Starting in October of 2016, the RMB will account for 10.92% of the International Monetary Fund (IMF) total reserve currency.^[24]

2.3 Obstacles of the Implementation

It is understood, that the “Going Out” strategy could not be implemented overnight. In fact, its implementation is a long process which still endures and occasionally raises different problems. Even the Chinese government regularly emphasizes that the regulatory system has not been fully straightened out yet.^[25] Especially the involvement of different independent agencies under the State Council makes it very difficult to create a consistent regulatory system for outbound investments. These agencies are rather competing than cooperating with each other which often prevents a rapid procedure for proposed outbound investments.^[26] The reason why different regulatory authorities are competent for the proposed project can be found in China’s history. The decision-making power regarding important administrative matters should be divided, so that not one office becomes too powerful by uniting the relevant authority. This strict hierarchy and division of state authorities and disciplined bureaucracy which shape China’s administration for hundreds of years still maintains. Besides that, no department is willing to relinquish its decision-making authority by working with another regulator together.

Another difficulty is that the regulation of outbound investments is no separate legal area, but affecting many other legal and social aspects (e.g. taxation, accounting and employment) which have to be considered when creating or modifying the regulatory system.

Despite these existing obstacles, until now, the Chinese government has done a big progress in reforming and adjusting the regulatory system. However, domestic companies still have to struggle with existing difficulties which will be discussed in the following.

2.4 Comparison to Western Countries

The active role of the Chinese government in supporting, but also in regulating outbound investments, is a special feature of the Chinese policy compared to foreign countries. In particular Western countries, like the USA or Germany, support outbound investments of domestic investors mainly passively, e.g. by concluding international treaties which contain economic benefits (such as tax relief) for domestic companies. On the other hand, a strict regulatory system of outbound investments which limits the domestic investor’s economic freedom generally does not exist in these jurisdictions.

The German law contains in § 1 of the Foreign Trade Act^[27] the principle of freedom of commercial trade. The existing, rather liberal takeover right is applicable equally to domestic and foreign investors. Outbound business actions can only be restricted or prohibited under certain conditions, such as ensuring the national security, preserving external relations with other countries, and protecting a peaceful coexistence of nations.^[28] Primary application of the permit requirement is the export of arms.^[29] However, no case has so far been refused by the Federal Office of Economics and Export Control. Otherwise, legal provisions which expressly encourage domestic companies to invest abroad are rare.^[30] One reason why the German government sees no need in supporting business activities abroad might be the strong competitiveness of German companies and the high reputation of products made in Germany.

Very similar is the legal situation in the USA. Besides international treaties with other countries and political support of outbound investments, legal provisions establishing a regulatory system of outbound investment do not exist. However, as the German law, the US law provides restrictions on the export of advanced technologies, e.g. in the Export Control Act. Here too, the main application is the export of arms and other dangerous goods.

By comparison, after 20 years of inviting foreign investors and receiving huge payment flows, China’s government decided not only to actively promote investments on the domestic market, but also investments of domestic investors on foreign markets. This fundamental modification of the “Please Come In” policy (请进来) by complementing the “Going Out “ strategy can be seen as ground-breaking change in China’s economic policy and ultimate step towards full integration into the global economy.^[31]

Chapter III The PRC’s Regulatory Procedures

for Outbound Investments

3.1 Historical Background

The historical development of the regulatory system of outbound investments by Chinese investors can be divided into four main periods:^[32]

The first period begins with the incipient reforms after the end of the Cultural Revolution in 1979 and lasts until 1982. During this period, foreign investments were regardless of the amount of the proposed investment only permissible with the approval of the State Council. However, foreign investments during that time tended towards zero.^[33] Therefore, it was not the case that the Chinese government reacted retrospectively to failed or mismanaged outbound projects by implementing a strict approval system. In fact, the approval system of outbound investment was an anticipating approach in order to minimize the possibility of any failure of a proposed outbound investment. “Touching the stones to cross the river” (摸着石头过河)^[34] is a widely known phrase which also fits describing the approach by the Chinese government deregulating outbound investments. In the beginning, only the just mentioned strict approval system existed. But over the next decades, the Chinese government liberalized the strict approval system by relaxing the requirements step-by-step to observe the effects instead of removing the whole system at once.

The second period covered the years 1983 to 1992. In 1983, the Ministry of Foreign Economic and Trade (predecessor of today's Ministry of Commerce, MOFCOM) has been appointed by the State Council as competent authority for outbound investments. However, a legal basis for the implementation of the approval procedure was missing. The legal framework for the approval procedure was established by two acts regarding the regulation and establishment of non-trading companies abroad in 1983 and 1984.^[35]

In the third period, between 1993 and 1998, the foundations of the current regulatory procedure were created. In this period, the Planning Commission (predecessor of the National Development and Reform Commission, NDRC) was integrated in the approval process for the first time.

The fourth period starts in 1999 and continues until today. In the beginning of this period, the focus of outbound investment lied on the processing industry, so that the priority of legislature and the government authorities was mainly to regulate this industrial sector. But, along with the shift of outbound investment in other industrial sectors and industries, the legislator and the government authorities began to create a general regulatory system for all kinds of outbound investments.

However, by and by the Chinese government recognized that a highly regulated environment for outbound investments causes obstacles for Chinese companies to invest abroad and is not compatible with the aim of a market-oriented investment pattern with autonomous enterprises.^[36]

Important reforms to deregulate the regulatory system of outbound investments took place in 2004 (Implementation of the Decision of the Third Plenary Session of the 16th Communist Party of October 2003 on the Reform of the Investment System) and in 2013/2014 (Implementation of the Economic Reform in November 2013 by the Third Plenary Session of the 18th Chinese Communist Party Congress on Promoting Foreign Investments by Firms and Households).

3.2 Reasons for the Regulation of Outbound Investments

An interesting question is, why the Chinese government insists on a close cooperation when domestic investors intend to invest abroad, and monitors and controls every single outbound investment. The political background such as the “Going Out” policy does not necessarily lead to stringent control of the outbound investment. The government presents several arguments to justify its regulatory system of outbound investments. Later on, the validity of these arguments will be analyzed in detail.

One of the arguments stated is that regulating outbound investments helps to protect Chinese investors from unprofitable investments abroad.^[37] Especially at the beginning of the great reforming process, after the end of the Cultural Revolution, the Chinese government feared that Chinese companies are unprepared for outbound investment because of their inexperience and lack of risk awareness. Thus, the implementation of a regulatory system seemed to help Chinese enterprises to make rational economic decisions, to minimize investment risks, and to provide management skills needed for long-term investments abroad.^[38] By implementing a regulatory system, the Chinese government claimed to improve the intern management and organizational structure of the domestic enterprises (“management approaches”) and to raise work efficiency.^[39] Furthermore, the Chinese government fears a reputational damage if big outbound investments by Chinese investors would fail.

Another protective purpose of the created regulatory system of foreign investment is to prevent disorderly and vicious competition among domestic enterprises.^[40] Due to the fact that particularly state-owned enterprises (SOEs) performed outbound investments in the beginning of the “Going Out” era, competition between Chinese investors should be avoided. The danger of outbidding each other typically appears in bidding processes for the purchase of foreign companies. In the end, the competent Chinese government authority shall decide which domestic enterprise may enter the bidding process or alternatively directs the domestic enterprises to make a joint bid on the target company.

Besides the government’s arguments, an important factor of monitoring outbound investments is also that the Chinese government can control in this way the outflow of the RMB. Capital controls mark a major aspect of China’s currency policy to guarantee a stable exchange rate and to secure the yearly aimed economy growth.

3.3 Description of the Approval / Filing Procedures

The PRC regulatory procedure of outbound investments is not written in a comprehensive code or handled by only one regulatory authority. In fact, there are many different legal rules to obey and several relevant regulatory authorities which are jointly involved in the regulatory procedure. Since these regulatory authorities generally act separately from each other and are legitimized to issue regulations, the risk of a not consistent regulatory system is imminent.

The most important PRC regulators of outbound investments are the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), the State Administration of Foreign Exchange (SAFE), the State-owned Assets Supervision and Administration Commission (SASAC), and the China Securities Regulatory Commission (CSRC). However, depending on the individual case, the type of the proposed investment, and the concerned industrial sector, the Chinese investor might need further approval of or filing with other regulators.

In the following, the above-mentioned regulators and the relevant rules for the regulatory process of outbound investments will be explained.

3.3.1 State Council / National Development and Reform Commission (“NDRC”)

3.3.1.1 Role of the State Council and NDRC in Outbound Investments

The State Council (国务院) is the executive body of the supreme organ of state power and hereby the chief administrative authority of the PRC. It is chaired by the Premier and meets once every six months. The State Council is formally responsible to the National People’s Congress (NPC) and its Standing Committee in conducting a wide range of government functions both at the national and at the local levels, and nominally acts by virtue of the NPC's authority. Among the most important functions and powers of the State Council are:^[41]

(i) to adopt administrative measures, enact administrative regulations and issue decisions and orders in accordance with the Constitution and other laws;
(ii) to submit proposals to the NPC or its Standing Committee;
(iii) to formulate the tasks and responsibilities of the ministries and commissions of the State Council, to exercise unified leadership over the work of the ministries and commissions and to direct all other administrative work of a national character that does not fall within the jurisdiction of the ministries and commissions.

The State Council’s areas of administration are organized in different governmental departments and agencies. Among them, the above mentioned NDRC, MOFCOM, SAFE, SASAC and CSRC are relevant for the procedure of outbound investments. Only under the condition that the amount of the proposed outbound investment exceeds a certain limit, the State Council has to be directly involved.

The NDRC (国家发展和改革委员会), successor of the former State Planning Commission (国家计划委员会), has broad administrative and planning control over the Chinese economy and is divided between several departments. For outbound investments, its Department of Foreign Capital and Overseas Investment plays an important role. The NDRC’s functions are particularly to study and formulate policies for economic and social development, maintain the balance of economic development, and to guide restructuring of China's economic system.^[42]

3.3.1.2 Overview of the Legal Situation until the Reform in 2013/2014

The Third Plenary Session of the 18th Congress of the Communist Party of China’s Central Committee in November 2013 laid the foundations for overhauling China’s investment regime.^[43] But already before this reformation process, the Chinese government was endeavored to reform the investment system and to lower the requirement for outbound investments. In 2004, the State Council released its Decision on Reforming the Investment System^[44] and the NDRC issued the Interim Administrative Measures on Approval of Outbound Investment Projects^[45] which both (partially) replaced the previous regulations on outbound investments from 1991.^[46]

The guidelines in the Circular 20/2004 emphasize the goal to deepen the investment system reform by regulating government investments and to reform the governments’ administration system for enterprise investments, aiming to streamline administrative procedures and to facilitate more Chinese enterprises in “going abroad”. Anticipating the new regulatory system of the reformation process in 2014, Sec. 2 para. 1 of the Circular 20/2004 stipulates the substitution of the existing examination and approval system by a “notification and recording system” (备案) - at least for non-government investments.

The NDRC 2004 Interim-Rules implemented another substantial innovation of the Circular 20/2004,^[47] namely that generally the central NDRC and its provincial branches are responsible for the examination and approval of proposed outbound investments, unless no specific provisions delegate the responsibility to the State Council.

According to Art. 4 of the NDRC 2004 Interim-Rules, the “verification and approval” (核准)^[48] by the central NDRC is required for

(i) projects of resource development (i.e. projects invested overseas to explore for and exploit resources as crude oil and mines) with an estimated investment amount of at least USD 30 million, or
(ii) for projects in other fields with an amount of at least USD 10 million.
Only in significant cases, when the estimated investment amount reaches or exceeds
(i) USD 200 million for projects of resource development, or
(ii) USD 50 million for other projects, the application must additionally be reported to the State Council for verification and approval.^[49]

According to Art. 5 of the NDRC 2004 Interim-Rules, the provincial branch of the NDRC is competent for outbound investments with an estimated investment amount of less than

(i) USD 30 million for projects of resource development, or
(ii) USD 10 million for other projects.^[50]

In these cases, the provincial branch has to submit a copy of the documents of verification and approval of the outbound project to the central NDRC, so that the NDRC stays up-to-date of the information concerning such projects. But, if the estimated amount of the proposed investment appears to reach or exceed the thresholds, the relevant provincial branch must forward the application to the central NDRC for review and approval according to Art. 8 of the NDRC 2004 Interim-Rules.

Art. 6 of the NDRC 2004 Interim-Rules provides a special rule for SOEs. For investments in projects of resource development of an amount less than USD 30 million or other projects with less than USD 10 million, the SOE shall make the investment decision on its own and file the relevant document with the NDRC for record. Then, the NDRC issues a record-filing certificate within seven working days.

3.3.1.3 Legal Consequences of the Reform in 2013/2014

The reform process, initiated in 2013, featured a significant step-by-step shift of the regulatory system of Chinese outbound investments from an approval-based regime to a filing-based regime. The Catalogue of Investment Projects Subject to Governmental Verifications, promulgated by the State Council from 2013,^[51] listed for the first time specific types of projects which required a “verification”.^[52] Investment projects not listed in the verification category only required a post transaction filing for records.

Along with the economic reform, the NDRC issued the Administrative Measures on Approval and Filing of Outbound Investment Projects^[53] which replaced the NDRC 2004 Interim-Rules.^[54] The NDRC 2014 Rules strengthened the responsibility of the NDRC and its provincial branches for outbound investments instead of the State Council’s and introduced strict timelines for the filing and approval procedure.^[55] Furthermore, the NDRC 2014 Rules implemented the significant change that generally only the filing of the outbound investment project with the NDRC or its provincial branches is necessary.^[56] The approval of outbound investments remains the exception. This shift from the approval requirement to a recordation system meant a huge step forward in simplifying the complex regulatory system. Moreover, the common distinction between projects of resource development and non-resource projects was given up.

The NDRC 2014 Rules were amended by the Decision of the National Development and Reform Commission on Amending the Relevant Clauses of the Measures for the Administration of the Confirmation and Recordation of Overseas Investment Projects and the Measures for the Administration of the Confirmation and Recordation of Foreign-Funded Projects.^[57]

The former Art. 7 para. 1 of the NDRC 2014 Rules stated that the verification and approval of the central NDRC is required if the proposed investment

(i) reached or exceeded USD 1 billion, or
(ii) was related to sensitive countries, regions or industries, regardless of the investment amount.

[...]

---

^[1] Jiang Zemin’s Report to the 14th Party Congress: “Accelerate Reform, Opening Up and Modernization; Strive for Greater Victories for Socialism with Chinese Characteristics.”

^[2] See Jiang, Chinese Investment, p. 1 et seq.

^[3] The CCPIT is a statutory organization under the Ministry of Commerce (MOFCOM), established in 1952 to promote Chinese industries and trade. It can be seen as the largest and the most important institution for the promotion of foreign trade in China.

^[4] The topic of the thesis is limited to “outbound direct investments” (often referred to as “ODI”), i.e. investments made by establishing a wholly-owned joint venture, cooperative enterprise abroad or acquisition of an existing overseas enterprise with intention to own, control, or manage that enterprise project, cf. Art. 2 of the ForEx 2009 Provisions (see below in footnote 109). “Non-direct investments”, i.e. investments in overseas securities or other financial products without providing direct control over the overseas company and regularly require frequent trading, underlie a different regulatory system which is not covered by this thesis.

^[5] See the course of outbound investments in the past in Annex 1.

^[6] See http://www.reuters.com/article/us-pirelli-chemchina-idUSKBN0MI0PQ20150322.

^[7] See http://www.ledinside.com/news/2015/3/go_scale_capital_acquisition_of_philips_lumileds_might_solve_chin a_led_patent_issues.

^[8] http://www.chinadaily.com.cn/business/2015-06/26/content_21106750_4.htm.

^[9] See American Enterprise Institute and Heritage Foundation, https://www.aei.org/china-global-investment-tracker/, which is also providing further detailed statistics and charts about Chinese outbound investments.

^[10] See http://www.ft.com/intl/cms/s/0/806fe102-67de-11e4-acc0-00144feabdc0.html#axzz43PMa0aED.

^[11] However, the phenomenon of “round tripping” for the purpose of tax avoidance should be considered, i.e. a major part of the outbound investments in Asia is made in Hongkong, where the money is reinvested in mainland China via companies established in Caribbean tax havens, cf. Ang/Heidel/Wong, Kauft China Europa?, p. 11.

^[12] Over the years, the shift of main investment areas from mining in the beginning to a mixture of technology, energy, brands, and consumer products nowadays becomes obvious, cf. Hannemann/Huotari, China Studies, p. 13.

^[13] IFLR, China’s Booming Outbound M&A Activity, p. 6.

^[14] Bu in Chinesische Outbound-Investitionen, p. 5.

^[15] See the interview in Annex 4, question no. 1a.

^[16] Guo, Understanding Chinese Economies, p. 222.

^[17] Cf. Jiang, Chinese Investment, p. 2; Guo, Understanding Chinese Economies, p. 222; März, M&A aus China, p. 4 et seq.

^[18] Guo, Understanding Chinese Economies, p. 222.

^[19] Cf. http://www.gov.cn/node_11140/2006-03/15/content_227686.htm; IFLR, China’s Booming Outbound M&A Activity, p. 6.

^[20] 境外直接投资人民币结算试点管理办法, issued on January 6, 2011, entering into effect on January 6, 2011 (hereinafter: POBOC Measures).

^[21] A qualified domestic enterprise is a non-financial institution registered in the pilot regions for cross-border trading settlement in RMB. However, Art. 23 of the POBOC Measures provides that the rules may be used as a reference for an outbound direct investment in RMB by a domestic financial institution. Domestic banks are also expressly authorized to provide loans denominated in RMB to foreign enterprises or projects invested by domestic enterprises (Art. 15 of the POBOC Measures), cf. Zheng/Ge in Chinesische Outbound-Investitionen, p. 37 et seq.

^[22] The initial total quota was set at RMB 20 billion (USD 3.17 billion) and rapidly increased by another RMB 50 billion (USD 7.94 billion) in April 2012. In the beginning, only Hong Kong subsidiaries of PRC investment banks and mutual funds participated in the program. But, in the last years, other financial places such as e.g. London and Singapore followed implementing the R-QFII scheme and promoting the development of offshore RMB business. On July 17, 2012, the first exchange-traded fund (ETF) investing in the mainland Chinese A-share market through the R-QFII program was listed on the Hong Kong Stock Exchange with an approved quota of RMB 5 billion. By the end of February 2014, the total quotas issued under the R-QFII program reached RMB 180.4 billion (USD 29.44 billion) at the end of December according to data by the Chinese agency SAFE, cf. http://www.reuters.com/article/china-investment-qfii-idUSL3N0LX35X20140228.

^[23] See https://www.imf.org/external/np/sec/pr/2015/pr15540.htm.

^[24] See http://www.bloomberg.com/news/articles/2015-11-30/imf-backs-yuan-in-reserve-currency-club-after-reject ion-in-2010.

^[25] E.g. http://www.gov.cn/node_11140/2006-03/15/content_227686.htm.

^[26] See the interview in Annex 4, question no. 5.

^[27] “Außenwirtschaftsgesetz (AWG)” in the version of the publication of May 27, 2009, most recently amended by the law dated December 8, 2010.

^[28] Diemer in Erbs/Kohlhaas, StrafrechtlicheNebengesetze, October 2015, § 1 AWG recital 1.

^[29] Cf. § 5 AWG; the German Federal Office of Economic and Export Control provides further information about regulations containing sensitive goods, see http://www.bafa.de/ausfuhrkontrolle/de/vorschriften/index.html (German).

^[30] One example is the Export Credit Guarantees Directive (“Richtlinien für die Übernahme von Exportkredit-garantien”).

^[31] Cf. Institute of Chinese Studies (ICS), no. 24, Dec. 2014, China’s “Going Out” Policy: Sub-National Economic Trajectories by Arvin Yelery, available at http://www.icsin.org/uploads/2015/04/12/e50f1e532774c4c354 b24885fcb327c5.pdf; Backaler, China Goes West, p. 15.

^[32] Bu in Chinesische Outbound-Investitionen, p. 9 et seq.; Jiang (in Chinese Investment, p. 221 et seq.) makes a similar, but not identical subdivision of different stages.

^[33] Only Hongkong as British colony was an important target country for Chinese outbound investments since the late 70’s, cf. Ang/Heidel/Wong, Kauft China Europa?, p. 3.

^[34] The phrase was coined by Deng Xiaoping; cf. Mahony, Foreign Investment Law, p 2.

^[35] The Notification of the Approval Authority and Principles on the Establishment of Non-Joint Ventures abroad, Hong Kong and Macao, dated May 1984 and the Preliminary Provisions on the Approval Procedure and Administrative Measures on the Establishment of Non-Trading Companies abroad, dated July 1985.

^[36] Cf. Sec. 1 para. 2 of the State Council’s Decision on Reforming the Investment System (国务院关于投资体制改革的决定), issued on July 16, 2004, entering into effect on the same date.

^[37] Bu in Chinesische Outbound-Investitionen, p. 11 et seq.

^[38] Cf. Sec. 4 of the Circular on Relevant issues in Implementing the Administrative Measure on Approval and Filing of Outbound Investment Projects from 2014 (国家发展改革委关于实施《境外投资项目核准和备案管理办 法》有关事项的通知), issued on May 14, 2014, entering into effect on the same date (hereinafter: Circular Implementing Administrative Measure).

^[39] Cf. Art. 4 of the Notice of the State Council on Promulgating the “Catalogue of Investment Projects Subject to Government Verification and Approval (2014 Version)”(国务院关于发布政府核准的投资项目目录（2014 年本）的通知).

^[40] Cf. Sec. 4 of the Circular Implementing Administrative Measure.

^[41] See http://english.gov.cn/archive/china_abc/2014/08/23/content_281474982987314.htm.

^[42] See http://en.ndrc.gov.cn/mfndrc/.

^[43] The key documents are available under http://www.xinhuanet.com/english/special/cpcplenum2013/.

^[44] 国务院关于投资体制改革的决定, issued on July 16, 2004, entering into effect on July 16, 2004 (hereinafter: Circular 20/2004).

^[45] 境外投资项目核准暂行管理办法, issued on October 9, 2004, entering into effect on the same date (hereinafter: NDRC 2004 Interim-Rules).

^[46] Zheng/Ge in Chinesische Outbound-Investitionen, p. 16.

^[47] Cf. Art. 2 para. 3 of the Circular 20/2004.

^[48] Although this term replaced the formerly used term “approval” (审批), the scope of examination by the authorities remained the same.

^[49] Art. 4 of the NRDC 2004 Interim-Rules.

^[50] Parallel to the annual growing volume of Chinese outbound investments, the approval power of the provincial branches of the NDRC had also been increased by raising the caps from USD 10 million to USD 100 million and from USD 30 million to USD 300 million by the Notice of the National Development and Reform Commission on Delegating Powers on Approval of Overseas Investment Projects, cf. 关于做好境外投资项目下放核准权限工作的通知, issued on February 14, 2011.

^[51] 政府核准的投资项目目录（2013年本）, issued on December 2, 2013, entering in effect on the same date.

^[52] These types can be divided into projects in one of 11 major sectors, foreign invested projects, and overseas investments by Chinese enterprises.

^[53] 境外投资项目核准和备案管理办法, issued on April 8, 2014, entering into effect on May 8, 2014 (hereinafter: NDRC 2014 Rules).

^[54] It is notable that the NDRC 2014 Rules not only directly apply for mainland China, but also for Hong Kong and Macao, cf. Art. 32 of the NDRC 2014 Rules.

^[55] The timelines in the NDRC 2004 Interim-Rules did not cover the entire procedure, e.g. there was no rule within how many days the NDRC had to seek relevant authorities’ opinions when the project involved sensitive countries or regions. The absence of mandatory times for response allowed the NDRC to exercise discretion, and delay the approval process, so that companies had to wait a long time to get the final result.

^[56] An overview of the current NDRC procedure is attached as Annex 2.

^[57] 国家发展改革委关于修改《境外投资项目核准和备案管理办法》和《外商投资项目核准和备案管理办 法》有关条款的决定, issued on December 27, 2014, entering into effect on the same date (hereinafter: Amended NDRC 2014 Rules).