June 01, 2010

Notice Regarding the Delegation of Approval Authority for Foreign-Invested Projects

Issuing Body: National Development and Reform Commission
Issuing Date: May 4, 2010
Effective Date: May 4, 2010

Moving quickly to follow the direction of China's State Council in trying to attract and manage additional foreign investment, the National Development and Reform Commission (NDRC) last month issued the Notice Regarding the Delegation of Approval Authority for Foreign-Invested Projects (NDRC Approval Delegation Notice), legally delegating authority for many projects valued at less than US$300 million to provincial authorities. The NDRC acted in response to the State Council's April release of the Several Opinions on Further Utilizing Foreign Capital (Foreign Capital Utilization Opinions).

In the Foreign Capital Utilization Opinions, the State Council outlined a set of priorities to encourage foreign investment in research and development centers, high-end manufacturing, high- and new technology, alternative energy, and other environmentally friendly industries, while discouraging investment in industries that consume large amounts of energy, pollute the environment, or are already over capacity in China.

Both the NDRC and the Ministry of Commerce had been expected to formulate rules to effect the new policies. The two agencies are also expected to revise the Foreign Investment Industrial Guidance Catalogue (Foreign Investment Catalogue), which categorizes industries as "encouraged," "restricted," and "prohibited" for foreign investment. The Foreign Investment Catalogue was last revised in October 2007.

Background

The NDRC is responsible for approving foreign investment involving fixed assets in various sectors, such as resources, transportation, machinery manufacturing, infrastructure construction, and technology. The commission examines and reviews proposed foreign investments from perspectives such as environmental protection, reasonable exploitation of resources, and safeguarding of the public interest.

Before issuance of the NDRC Approval Delegation Notice, which took effect immediately, foreign investments that fell within the Foreign Investment Catalogue's "encouraged" or "permitted" categories and involved an investment of US$100 million or more had to secure approval directly from the NDRC, while smaller investment projects required only provincial-level approval. In practice, provincial NDRC offices further delegated authority for projects within the "encouraged" and "permitted" categories to local counterparts at varying thresholds.

Meanwhile, foreign investments within the Foreign Investment Catalogue's "restricted" category required central NDRC approval at or above US$50 million.

Highlights: Higher Thresholds, Local Control, Streamlined Procedures

The NDRC Approval Delegation Notice states clearly that approval authority for foreign investment under the "encouraged" and "permitted" categories with a total investment below US$300 million is delegated to provincial-level NDRC offices.

Approval authority for foreign investment in the "restricted" category, however, remains unchanged: Projects at or above US$50 million require approval from the central NDRC.

The NDRC Approval Delegation Notice also directs NDRC offices at the provincial and local levels to further simplify approval procedures, shorten processing times, increase the transparency of the approval process for foreign investment, and publicize approved investments through diverse methods, including official journals, Web sites, and press conferences.

NDRC offices at the provincial and local levels are likewise directed to improve the investment environment for foreign investors by fostering the development of local development zones and guiding foreign investment to such areas.

The NDRC Approval Delegation Notice also directs its provincial and local counterparts to pay close attention to key issues involving foreign investment, strengthen their analysis of foreign investment trends, coordinate efforts, and resolve difficulties in a timely manner, and report to the NDRC about vital problems confronting foreign investors.

Conclusion

Having received approval authority for many larger foreign development projects (valued up to US$300 million), provincial NDRC offices will gain much broader powers. Since it is generally easier and less time-consuming to obtain approvals from provincial and local authorities than from the higher central authorities in Beijing, this development is likely good news for foreign investors. As provincial and local authorities begin to approve more large projects, however, regional variations in their criteria and standards for approval may emerge.

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