Yuan band widening! Free trade zones! State-owned enterprise listings! While headlines point to a season of economic liberalization in China, every innovation seems to carry its share of caveats and unanswered questions.
New regulations on state approvals for Chinese companies investing overseas are no exception. While bankers may be hoping that the new higher bar on what deals will require central government approval may speed up overseas acquisitions by Chinese companies, some of the “hot” sectors remain tightly controlled.
The new rules, which China’s National Development and Reform Commission (NDRC) announced in April and took effect on May 8, raise the threshold for the size of transaction requiring full review by the body, China’s top economic planner.
Under the rules, only investments over $1 billion will require full review and approval by the NDRC. Investments below that will still have to go through a filing process with the NDRC or with provincial governments, depending on the amount, but will be free of the central government’s purview.
Before the change, any outbound transaction with deal value over $100 million had to go through a central PRC regulatory approval process, which previously could take months, bankers say. The delay helped cast uncertainly over negotiations with foreign sellers, who could not be sure whether deals agreed upon with Chinese companies would ultimately be approved.
But despite the changes, a slew of controls remain in place. The new regulations list many “sensitive” industries which are not covered by the relaxed rules and for which NDRC reserves the right to review all investments, regardless of amount. Those include telecommunications, cross-border water resources, large-scale land development, power transmission lines, electric grids, and news media. That last category could apply to the tech and online content companies Alibaba Group has been snapping up in the run-up to its IPO later this year, not to mention Forbes Media, in which Chinese conglomerate Fosun International has expressed interest.
Read more at The Wall Street Journal.