China’s Ministry of Commerce (MOFCOM) has released new Rules on Overseas Investment ("New Rules"), which will make it easier for Chinese enterprises to get approval to invest overseas. The New Rules will go into effect on May 1, 2009.
Relaxed rules on governmental approval
Under the New Rules, MOFCOM will retain the power to grant approval for: (1) investment in a foreign country that does not have diplomatic relations with China; (2) investment in some specific countries or territories (list of names to-be-decided); (3) an overseas investment project in which Chinese companies fund US$100 million or more; (4) overseas investment relating to interests of several countries or territories; or (5) a Chinese company’s establishment of a foreign company that is directly or indirectly controlled by this Chinese company for the purpose of making its domestic corporate stakes go public in a foreign stock market. MOFCOM will also administer Chinese central enterprises’ overseas investment. Except these circumstances abovementioned, local authorities have wide power to give approval to overseas investment.
The New Rules also simplify the application documents and approval process. For instance, in most cases, Chinese companies will receive results within three business days after submitting overseas investment application for approval.
Prohibition of abuse of protected words in a foreign company name
According to the New Rules, when a Chinese company sets up a foreign company, its name shall not contain "China", "Chinese", "National", or the similar words, which are protected by China’s Rules on Registration of Enterprise Name, unless this Chinese company gets approval from Chinese governmental authorities. This requirement aims to forbid some Chinese investors from abusing those protected words in practice, for this behavior may have a misleading impact on a third party.
With nearly US$2 trillion foreign-exchange reserve, China desires to diversify the foreign investment. In February 2009, China announced US$22 billion of planned overseas spending, including a US$19.5 billion investment in Rio Tinto Group, the world’s third-largest mining company. The New Rules, facilitating the administration of overseas investment, will give Chinese companies more space for investment decision-making and provide them more support to go abroad.