Foreign Investment in Restricted Industries

by Lingling Jiang

In China Operations Q&A, the US-China Business Council’s (USCBC) Business Advisory Services staff members answer questions companies have about business operations in China.

Q: Our business is under the restricted category of the Catalogue Guiding Foreign Investment. What is the approval process we need to go through, and how long does it usually take?

A: There is no standard process for approval of foreign investment in industries that fall under the restricted category of the Catalogue Guiding Foreign Investment—a document that defines whether foreign investment is encouraged, restricted, or prohibited in a particular industry. The actual practice can depend on the industry and investment scale. Most requests usually go through a prerequisite approval process with the industry’s administration authority, which varies from industry to industry. For example, companies in the bio-tech industry would likely need to get approval from the Ministry of Health before seeking approval from other agencies. A company would then seek approval from the Ministry of Commerce (MOFCOM) and the National Development and Reform Commission (NDRC) or their local counterparts, depending on the size of the investment.

Foreign investment in restricted industries can involve even more government agencies depending on the industry and the investment amount. However, the industry administration authority is usually the agency the investor should work with first.

BASIC APPROVAL PROCESS

Once an investment is approved by an industry administration authority, a company then usually must obtain approval from MOFCOM and NDRC. Companies should seek approval from NDRC before going to MOFCOM because MOFCOM will not approve a request unless other agencies have approved it first. Whether approval is needed from the national agency or its local counterparts depends on the investment value and industry.

NDRC approval

NDRC evaluates whether an investment matches industry policies and economic development goals. According to NDRC rules, investment projects in the restricted category should be approved by provincial-level NDRC offices or above. Provincial NDRC offices can approve any investment in restricted industries below $50 million, and the national-level NDRC approves any restricted investment between $50 million and $100 million. The State Council must approve any investment of more than $100 million.

In Shanghai, for example, companies that want to invest less than $50 million in a restricted industry would need approval from the Shanghai Development and Reform Commission. But a company that wants to invest more than $50 million would submit a project application to the national-level NDRC. After receiving approval from NDRC, the company can then submit the contract and articles of association for MOFCOM approval.

MOFCOM approval

MOFCOM focuses on document requirements and general considerations, such as environmental impact and land use. Investments of more than $50 million in restricted industries require investors to submit an application to provincial MOFCOM branches, such as the Shanghai Commerce Commission. If there are no questions, the Shanghai commission sends the documents to MOFCOM for review and approval. MOFCOM usually makes an approval decision within three months. It is important to note that the other agencies must approve investment plans before MOFCOM. If the project is approved, the Commerce Commission will notify the investor.

For investment projects worth less than $50 million in restricted industries, project approvals are less expensive, less time consuming, and more flexible, and provincial commerce departments can approve projects without sending applications to MOFCOM. Companies have easier access to local officials involved in the approval process than would be the case in a national-level approval process. But companies should keep in mind that no matter which level of approval is required companies must apply to the agency that works with them directly.

Approval times

The time it takes for companies to navigate these procedures can vary depending on approval authorities, documentation requirements, and other conditions of operating in restricted industries, such as equity limitations. USCBC member companies have reported that if all goes smoothly, the entire approval process takes roughly one year. The process could take longer if approval is required from more than the usual number of agencies. In practice, if an agency is dissatisfied with the submitted documents, any of the steps in the approval process could take longer. Companies that invest in restricted industries in western China may have an easier time obtaining approval quickly because the Chinese government is trying to attract more foreign investment to interior provinces.

[author] Lingling Jiang ([email protected]) is manager of business and policy research at USCBC’s Shanghai office. [/author]

China Operations Q&A

Foreign Investment in Restricted Industries

by Lingling Jiang

In China Operations Q&A, the US-China Business Council’s (USCBC) Business Advisory Services staff members answer questions companies have about business operations in China.

Q: Our business is under the restricted category of the Catalogue Guiding Foreign Investment. What is the approval process we need to go through, and how long does it usually take?

A: There is no standard process for approval of foreign investment in industries that fall under the restricted category of the Catalogue Guiding Foreign Investment—a document that defines whether foreign investment is encouraged, restricted, or prohibited in a particular industry. The actual practice can depend on the industry and investment scale. Most requests usually go through a prerequisite approval process with the industry’s administration authority, which varies from industry to industry. For example, companies in the bio-tech industry would likely need to get approval from the Ministry of Health before seeking approval from other agencies. A company would then seek approval from the Ministry of Commerce (MOFCOM) and the National Development and Reform Commission (NDRC) or their local counterparts, depending on the size of the investment.

Foreign investment in restricted industries can involve even more government agencies depending on the industry and the investment amount. However, the industry administration authority is usually the agency the investor should work with first.

BASIC APPROVAL PROCESS

Once an investment is approved by an industry administration authority, a company then usually must obtain approval from MOFCOM and NDRC. Companies should seek approval from NDRC before going to MOFCOM because MOFCOM will not approve a request unless other agencies have approved it first. Whether approval is needed from the national agency or its local counterparts depends on the investment value and industry.

NDRC approval

NDRC evaluates whether an investment matches industry policies and economic development goals. According to NDRC rules, investment projects in the restricted category should be approved by provincial-level NDRC offices or above. Provincial NDRC offices can approve any investment in restricted industries below $50 million, and the national-level NDRC approves any restricted investment between $50 million and $100 million. The State Council must approve any investment of more than $100 million.

In Shanghai, for example, companies that want to invest less than $50 million in a restricted industry would need approval from the Shanghai Development and Reform Commission. But a company that wants to invest more than $50 million would submit a project application to the national-level NDRC. After receiving approval from NDRC, the company can then submit the contract and articles of association for MOFCOM approval.

MOFCOM approval

MOFCOM focuses on document requirements and general considerations, such as environmental impact and land use. Investments of more than $50 million in restricted industries require investors to submit an application to provincial MOFCOM branches, such as the Shanghai Commerce Commission. If there are no questions, the Shanghai commission sends the documents to MOFCOM for review and approval. MOFCOM usually makes an approval decision within three months. It is important to note that the other agencies must approve investment plans before MOFCOM. If the project is approved, the Commerce Commission will notify the investor.

For investment projects worth less than $50 million in restricted industries, project approvals are less expensive, less time consuming, and more flexible, and provincial commerce departments can approve projects without sending applications to MOFCOM. Companies have easier access to local officials involved in the approval process than would be the case in a national-level approval process. But companies should keep in mind that no matter which level of approval is required companies must apply to the agency that works with them directly.

Approval times

The time it takes for companies to navigate these procedures can vary depending on approval authorities, documentation requirements, and other conditions of operating in restricted industries, such as equity limitations. USCBC member companies have reported that if all goes smoothly, the entire approval process takes roughly one year. The process could take longer if approval is required from more than the usual number of agencies. In practice, if an agency is dissatisfied with the submitted documents, any of the steps in the approval process could take longer. Companies that invest in restricted industries in western China may have an easier time obtaining approval quickly because the Chinese government is trying to attract more foreign investment to interior provinces.

Lingling Jiang ([email protected]) is manager of business and policy research at USCBC’s Shanghai office.