There is no question that Chinese investors have played an important role in maintaining deal flow over the past several years, especially for trophy properties in gateway cities like London and New York. However, until recently, these investors have been at a competitive disadvantage due to a lengthy government review and approval process.
Under prior Chinese regulations, any outbound investment in excess of USD 100 million (USD 300 million in natural resources sector) required approval by the National Development and Reform Commission (NDRC), the Ministry of Commerce (MOFCOM), and the State Administration of Foreign Exchange (SAFE). These approvals could take more than a year to obtain, much longer than most sellers can tolerate, even in a recovering market.
The NDRC recently announced a new notice based system with lowered approval thresholds and a streamlined approval process, as follows:
- Foreign investments under USD 1 billion only require a notice filing with the NDRC.
- Foreign investments exceeding USD 1 billion, but less than USD 2 billion, are subject to approval by the NDRC, which approval is to issue within 20 days following application.
- Foreign investments exceeding USD 2 billion require an endorsement by the NDRC and China State Council approval. The NDRC endorsement is to issue within 20 days of application.
The new rules do not apply to investments in countries with China has no formal diplomatic relations. Similarly, the new rules do not apply to countries subject to international sanctions or which are at war or subject to internal unrest. There are similar carve-outs for sensitive industries, including telecommunications and new media investments. Nonetheless, this new regulatory regime effectively removes a barrier of entry for Chinese real estate investors around the globe, which should be good for sellers and good for competition.