By Tim Donovan
According to US-China Business Council (USCBC) sources and Chinese media reports, the National Development and Reform Commission (NDRC) is considering a new series of investment reforms that would remove so-called “first approval” from the investment approval process. First approval—an informal request by the NDRC to pre-approve investment projects—has led to significant delays for domestic and foreign companies in the past, in some cases postponing initial catalogue listings by as many as two years.
Since the reform of China’s investment system in 2004, project proposals not using government funds need to be included in the Investment Projects Catalogue Approved by the Government. In order to apply for the catalogue, a privately-funded project must first obtain pre-approval from NDRC officials. Getting pre-approval is no simple task: companies must provide the local NDRC office with impact reports on land location, environmental risks, and project planning for power and utilities. Only after receiving feedback from the NDRC can companies prepare the documentation necessary to offer an application.
The breadth of this precondition has increased impediments for the investment system as a whole. According to the catalogue, foreign investments above $100 million in encouraged categories and above $50 million in restricted categories are required to seek first approval from NDRC officials. Like domestic companies that apply for catalogue approval, foreign companies too are expected to follow through on the preconditions requested by the NDRC.
As China’s investment system undergoes reform, the removal of pre-approval, or “flagging,” would have a positive effect on the environment for foreign investment. If the reform targeted only domestic companies, for example, then foreign companies would be at a comparative disadvantage. However, dropping pre-approval for both foreign and domestic firms would be a sign that all investments are being processed under the same system. Moreover, these changes seem to reflect a greater desire on the part of Chinese leadership for more private sector participation in the economy.
Sources close to NDRC officials have told USCBC that—in addition to the changes in pre-approval—an online platform may also be established to streamline the process and offer greater accountability for time limits associated with approval applications. Such a system would not be established until after the third plenum in November. But no matter the timeline, both suggested reforms are positive changes that would help facilitate Premier Li Keqiang execute his plan for growth by creating a faster and more transparent process for private investment.