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: Law at the End of the Day

Institutionalizing China's Go Global (?????) Policy: A Recap of China's Outbound Investment Rules

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Like other developed states, the People's Republic of China encourages both inbound and outbound investment. Unlike the oldest developed states, China can still exploit the propaganda of "development" to mask the extent to which it has achieved its status as a member of this exclusive group of nations occupying the first tier of power and influence. That masking is a powerful tool in forging China's relationship which less powerful states, especially those still developing into which China is projecting its investment. See, Larry Catá Backer, Courting Africa--21st Century China Africa Investment and Cooperation Forum, Law at the End of the Day, Aug. 7, 2010; Larry Catá Backer, China and Neo-Colonialism in Africa: A Warning from South Africa, Law at the End of the Day, Dec. 15, 2006.

But unlike Western developed states (and more like Japan), The Chinese state apparatus, under the leadership of the Communist Party (??), has been developing a well coordinated and institutionalized program that seeks to direct Chinese outbound investment into channels that serve both the economize interests of public and private entrepreneurs and the overall interests of the state. I have suggested its contours through the structuring of the Chinese sovereign wealth fund. See Larry Catá Backer, Sovereign Investing in Times of Crisis: Global Regulation of Sovereign Wealth Funds, State Owned Enterprises and the Chinese Experience, Transnational Law & Contemporary Problems, Vol. 19(1):3-144 (2010).

My research assistant Siyu Zai has produced a short description of China's current policies, procedures and regulation of outbound investment that begins to suggest the institutional contours of China's well coordinated approach to projections of economic (private) and political (public) power in its through global economic markets with political actors.

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China's Current Policy, Procedure, and Regulation on Outbound Investment

Siyu Zai

In the years 2004 and 2005, the China Development and Reform Committee, together with Import and Export Bank of China, issued two Notifications on the state?s support of major projects in outbound investment. In the Notifications, the two institutions addressed Chinese governments at all levels and state owned enterprises to support and facilitate financing for outbound investment. The Notifications provide that China Development and Reform Committee and Import and Export Bank of China will build a credit aid mechanism for outbound investment. Based on the nation?s policy, the Import and Export Bank of China will arrange finance that is specifically made for the purpose of supporting projects encouraged by the state. These special-purpose loans receive a favorable interest rate. Primarily, these special-purpose loans are for the following projects:
1. Investment projects on resources that can compensate China?s lack of resources;

2. Productive projects or infrastructure projects that can facilitate the export of China?s technology, products, facility or the export of labor service;
3. Overseas research and development center program that can utilize international advanced technology, management experience, and professionals;
4. Merger and acquisition projects that can improve enterprises? international competence and that can accelerate the exploration of international market.

Any corporation that is chartered in China is eligible to apply for these loans.
The Notifications also provide that the Development and Reform Committee guides and facilitates those outbound investments in order to achieve good economic and social effects. Likewise, the Import and Export Bank of China shall accelerate the review process for these projects. In addition, the Bank will also provide other services, such as cooperating with international financial organizations to put financial plan into practice. The Bank will further extend the length of maturity for loans made to strategic projects.
The two Notifications can be found at http://www.ndrc.gov.cn/wzly/jwtz/jwtzzn/t20050928_44059.htm and http://www.ndrc.gov.cn/zcfb/zcfbtz/zcfbtz2004/t20050613_7160.htm.
In year 2009, the Development and Reform Committee further issued another Notification on outbound investment. In the Notification, the Committee stated that, these years, Chinese enterprises apparently increased the volume of their outbound investment, under the guidance of the state?s ?Go Global? policy. This Notification applies to investment projects that are approved by the Committee or the State Council, including outbound acquisition and overseas competitive bidding. The Notification requires Chinese enterprises deliver to the Committee, as well as other concerning governmental departments, informational reports on their investment projects. The informational reports shall provide all required information listed on the Committees? website, www.ndrc.gov.cn. The Committee will issue a confirmation letter with seven days upon receiving an informational report. If the Committee discovers any substantial adverse factor related to the proposed investment project, the Committee will include a risk tip in the confirmation letter. With projects that have adverse factors, the Committee will exercise strict scrutiny and the enterprise shall act with caution. The Notification further provides that the Committee will circulate a notice of criticism for enterprises that violate the Notification. The Committee may further sanction on concerning departments and leaders for violating the Notification.
The 2009 Notification can be found at http://www.sdpc.gov.cn/zcfb/zcfbtz/2009tz/t20090619_286696.htm.
In 2005, the State Administration of Foreign Exchange issued a Notification on banks? adjustment made to investing enterprises? external guarantee with a financing nature. In the Notification, the State Administration of Foreign Exchange stated that, in order to support enterprises participating in international cooperation and to solve of problem of financing, under the Administrative Measures on Domestic Institutions? External Guarantee, the Administration decided to further simplify the procedure that authorized bank for dealing in foreign exchange provides external guarantee to overseas subsidiaries of domestic enterprises.
The Notification issued by the State Administration of Foreign Exchange can be found at http://www.law-lib.com/law/law_view.asp?id=96619.
In addition, in 2007, China Insurance Regulation Commission, together with People?s Bank of China and the Administration of Foreign Exchange, provided an administrative measure to regulate Outbound Investment made by Insurance Fund. http://www.law-lib.com/law/law_view.asp?id=206909.

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The construction of a more sophisticated and well managed system for the coordination and direction of Chinese outbound investment is likely to produce a number of substantial benefits to the Chinese state. These take two principal forms. First, it serves as a laboratory for the development of Chinese approaches to economic regulation. The contours of this approach is beginning to take form and can be roughly organized into three broad categories. One, overall economic policy is developed under the overall direction by the Party. Two, the state apparatus (National People's Congress internally and specific ministries externally) transforms these policy goals and directions into specific goals and programs and provides the mechanisms through which they might be attained. Three, the productive sectors, both private and public sectors, are expected to conform their business decisions to these goals and objectives, as the principal structural constraints on their overall goal of maximizing the economic value of their activities (that is, of making profits for their entities and shareholders).

Second, it permits the construction of a system of economic organization in which public and private goals can be merged within a free market framework. The object is to provide a theoretical farmework that permits broad and specific interventions by the state in the ordering of economic priorities and values while retaining a framework of individual and institutional maximization within the value system and in step with the direction specified by the state. What makes this interesting is that there are echoes of this movement in the West as well. See, e.g., Larry Catá Backer, Values Economics and Theology: The Contribution of Catholic Social Thought and its Implications for Legal Regulatory Systems, 5(2) Economics, Management, and Financial Markets 5(2):17-56 (2010).But the different between Chinese and Western approaches is centered on the role of the state in determining values systems, and its authority to direct the specific direction of economic activity--things left to the private sector to a much greater extent in Western versions of this model. See, Larry Catá Backer, Private Actors and Public Governance Beyond the State: The Multinational Corporation, the Financial Stability Board and the Global Governance Order (August 13, 2010) (forthcoming Indiana Journal of Global Legal Studies 17:-- (2011).

Full post as published by Law at the End of the Day on September 05, 2010 (boomark / email).