Member Article

The State Development and Reform Commission (“SDRC”) promulgated the Provisional Measures for the Administration of the Verification of Foreign Investment Projects on 9 October 2004. The Provisional Measures, which entered into effect on the date of their promulgation, are based on the Law of the People's Republic of China on Administrative Licensing and the Decision of the State Council on the Reform of the Investment System (as discussed respectively in the No. 14 November 2003 issue and the 2004.3 issue of China Legal Update). The Provisional Measures are applicable to the verification of foreign investment projects by the various levels of development and reform commissions. The development and reform commissions are primarily responsible for overall investment planning in their administrative regions. Foreign investment projects verified by a development and reform commission still must be approved by the government authority in charge of foreign investment. Scope For the purpose of the Provisional Measures, foreign investment projects include equity and cooperative joint ventures, wholly foreign-owned enterprises, acquisitions of domestic enterprises by foreign investors and capital increases of foreign investment enterprises (“projects”). Approval levels The Provisional Measures clarify the level of development and reform commission that has responsibility for verifying projects. The level is mainly determined by the total amount of investment and the classification of the foreign investment project in the Catalogue for Guiding Foreign Investment in Industries. Project applications for encouraged and permitted projects with total investment of over US$100 million and restricted projects with total investment of over US$50 million need to be verified by the SDRC. Encouraged and permitted projects with total investment of over US$500 million and restricted projects with total investment of over US$100 million must be verified by the State Council after the project application has been verified by the SDRC. Project applications for encouraged and permitted projects with total investment of less than US$100 million require verification by the local development and reform commissions. Restricted projects with total investment of less than US$50 million require verification by the local development and reform commissions and this authority may not be further delegated. Verification The Provisional Measures specify various criteria that the development and reform commissions should utilise in the verification review of projects. Amongst others, there must be a review of whether the investment comports with the public interest and the regulations regarding the avoidance of monopolies. The Provisional Measures provide that verification of a project by the relevant level of development and reform commission is a necessary condition for the project to be processed by other authorities such as those in charge of foreign investment approval, commerce and industry, tax etc. Other issues The Provisional Measures detail the documents that need to be submitted for the purpose of the verification process.