Circular on Issuing Measures for the Financial Management for Outbound Investment Made by State-owned Enterprises

Cai Zi [2017] No.24

June 12, 2017

The relevant departments of the CPC Central Committee, the ministries, commissions and directly subordinate organizations of the State Council, finance departments (bureaus) of all provinces, autonomous regions, municipalities directly under the Central Government and cities specifically designated in the state plan, Bureau of Financial Affairs of the Xinjiang Production and Construction Corps and enterprises governed by the Central Government,

In order to strengthen the financial management for outbound investment made by state-owned enterprises, prevent the financial risks from outbound investment, increase the investment efficiency and enhance the ability of state-owned assets to serve the "Belt and Road Initiative", "going-out" and other national strategies, the Ministry of Finance has formulated the Measures for the Financial Management for Outbound Investment Made by State-owned Enterprises (the "Measures"), which are hereby issued to you for your implementation in compliance.

Measures for the Financial Management for Outbound Investment Made by State-owned Enterprises

Chapter I General Provisions

Article 1 In order to strengthen the financial management for outbound investment made by state-owned enterprises, prevent the financial risks from outbound investment and increase the investment efficiency, the Measures are formulated in accordance with the Company Law of the People's Republic of China, the General Rules on Enterprise Finance Affairs and other relevant provisions.

Article 2 For the purpose of the Measures, "state-owned enterprises" refer to the solely state-owned enterprises, solely state-owned companies and state-owned holding companies to which the State Council and local people's governments respectively perform the investors' duty on behalf of the State, including enterprises supervised or invested in level-by-level by central and local state-owned asset supervision and administration institutions and other departments.
The Measures shall be applicable to enterprises jointly operated by state-owned enterprises and state-owned equity companies.

Article 3 For the purpose of the Measures, "outbound investment" refers to the acts that state-owned enterprises, by new establishment, merger, participation in equity and other means, acquire the ownership, right of control, right of operation and management and other rights of enterprise legal person and non-legal-person projects [hereinafter collectively referred to as the "outbound-investment enterprises (projects)"] in the Hong Kong SAR, Macao SAR, Taiwan and regions outside the territory of the People's Republic of China.
The Measures will not apply to outbound-investment enterprises (projects) that do not engage in specific production and operation, investment or management activities.

Article 4 The financial management of outbound investment by state-owned enterprises shall be involved in the whole course of decision-making, operation, performance evaluation, etc.
A state-owned enterprise shall set up the outbound-investment management mechanism unifying the responsibility and rights and combining incentive and restraints, improve the financial management system for outbound investment, enhance the financial management level of outbound investment and raise the efficiency of the decision-making, organization, control, analysis and supervision thereof.

Article 5 The operation of outbound investment by a state-owned enterprise shall be in compliance with domestic laws, administrative regulations and laws and regulations of the country (region) where the investment is made, and shall meet the strategies and planning for the development of state-owned enterprises.

Chapter II Duties for the Financial Management of Outbound Investment

Article 6 The shareholders' meeting (assembly), Party Committee (Group), board of directors, general manager's meeting or internal institutions in other forms (hereinafter collectively referred to as "internal decision-making institutions") of a state-owned enterprise shall, in accordance with the relevant laws, regulations and articles of association, perform the corresponding management duty relating to the outbound-investment enterprises (projects) of such enterprise. Internal decision-making institutions shall focus on the following financial issues:
1. financial feasibility of outbound investment plans;
2. financial income, risks and other issues with respect to significant plans relating to the increase and decrease of liquidation of outbound investment;
3. competence, professional integrity and employment period of the CFO or financial director (hereinafter referred to as the "financial principals") candidates in charge of outbound-investment enterprises (projects);
4. performance of outbound-investment enterprises (projects);
5. management of tax compliance and tax-levying risks for outbound-investment enterprises (projects); and
6. other significant financial issues.

Article 7 A state-owned enterprise shall designate a principal in charge of the finance work of outbound investment among the president, general manager, vice general manager, chief accountant (financial director, CFO) and other members of the leading group.

Article 8 A state-owned enterprise group company shall, with respect to outbound investment, perform the following financial management duties:
1. formulate the financial system of outbound investment that meets the actual situation of such group in accordance with the financial systems formulated uniformly by the State and common international practices, and urge the enterprises affiliated thereto to strengthen the financial management of outbound investment;
2. establish and improve the internal audit and supervision system for outbound investment of such group;
3. make a summary of the financial situation of the annual outbound investment of such group;
4. organize the enterprises affiliated thereto to launch the performance evaluation of outbound investment, and summarize the annual performance evaluation report on the outbound investment of such group; and
5. hold the relevant responsible persons liable in the case of any loss on outbound investment due to the decision-making in violation of provisions, dereliction of duty, misfeasance or other reasons in the financial management of the enterprises affiliated thereto.
Regarding enterprises supervised by relevant departments under people's governments at all levels and public institutions, such departments and public institutions shall perform the duties above.

Article 9 Financial departments under people's governments at all levels (hereinafter collectively referred to as the "Financial Authorities") shall, with respect to the outbound investment by state-owned enterprises, perform the following financial management duties:
1. the financial department under the State Council shall be responsible for formulating the financial management system and internal control system for outbound investment, which shall be implemented through the organization by competent financial authorities;
2. collect the annual financial affairs with respect to outbound investment by state-owned enterprises, analyze and monitor the operation of the finance of outbound investment; and
3. other financial management duties granted by people's governments at the same level.

Chapter III Financial Management for the Decision-making of Outbound Investment

Article 10 A state-owned enterprise shall, in accordance with the Circular of the Central Committee of the CPC and the General Office of the State Council on Issuing the Opinions on Further Promoting State-owned Enterprises to Implement the "Three Important and One Large" Decision-making System and other relevant requirements, establish and improve the decision-making system for outbound investment and clarify the decision-making rules, procedures, entity, authority, responsibility, etc.

Article 11 Where a state-owned enterprise makes outbound investment by merger, joint operation or participation in equity, it shall establish a team including experts from fields of industry, finance affairs, taxation, law and international politics, etc., or entrust a capable intermediary with no interest in the client to launch the due diligence and compile a written report. Specially, the financial due diligence shall focus on the following financial risks:
1. macro economy risks of the country (region) where a target enterprise (project) is located, including the outlook of economic growth, financial environment, stability of foreign investment and taxation policies, price fluctuation, etc.; and
2. financial risks existing in such target enterprise (project), including large fluctuation or non-sustainment of income and profit, impairment of large-amount assets, contingent liabilities, demands for supplement of large-amount operation funds, high-liability investment projects, etc.

Article 12 A state-owned enterprise shall organize its internal team, or entrust a capable external institution with no interest in the client, to launch the research on financial feasibility.
For outbound investment with a large investment scale or great significance to the development strategies of the enterprise, a state-owned enterprise shall respectively organize and implement the internal and external research on financial feasibility, and request the team and institution undertaking such research to independently issue written reports; for the value of investment subject matter, a capable asset appraisal institution shall be entrusted to appraise the subject matter according to the law.

Article 13 A state-owned enterprise launching the research on financial feasibility shall, in combination with its development strategies and financial strategies, conduct sensitivity analysis on the influence of the changes in prices of key commodities, interest rates, exchange rates, tax rates and other factors on the profit of outbound-investment enterprises (projects), evaluate relevant financial risks and formulate response plans.

Article 14 A state-owned enterprise shall make decisions on the basis of due diligence, research on feasibility and other preliminary work.

Article 15 When performing the duty of decision-making, the internal decision-making institution of a state-owned enterprise shall compile written minutes that shall be signed by all members participating in the decision-making. If a member of an internal decision-making institution raises any objection or hints of any significant risk when voting on relevant items, such objection or hint shall be recorded in the written minutes.

Article 16 If the interest of any member of the internal decision-making institution, or his/her immediate family or major interested party is involved in any decision-making item with respect to the outbound investment made by a state-owned enterprise, relevant persons shall actively withdraw by application.

Chapter IV Financial Management for the Operation of Outbound Investment

Article 17 State-owned enterprises shall involve outbound-investment enterprises (projects) in the comprehensive budget management system, clarify the annual budget targets and strengthen the budget control over their significant financial matters.

Article 18 State-owned enterprises shall urge outbound-investment enterprises (projects) to, by articles of association or other means in compliance with the laws and regulations of outbound countries (regions) define the scope of significant financial matters and clarify the requirements for the approval of financial authorization and control of financial risks.
For outbound-investment enterprises (projects) with a large investment scale or great significance to the development strategies of the enterprise, a state-owned enterprise shall draft a covenant in the investment agreement in advance that qualified financial principals or financial staff will be selected and dispatched to analyze the financial status and operation achievements regularly, report and submit the financial information to such state-owned enterprise in due time and report the significant financial matters according to the provisions; the state-owned enterprise may conduct a special audit on outbound-investment enterprises (projects) if necessary.

Article 19 A state-owned enterprise shall establish and improve the ledgers of outbound-investment enterprises (projects) that reflect the purpose, amount, shareholding ratio (control right), financing structure, industry, key resources or capacity, significant financial matters and other information with respect to outbound investment.
For the purpose of the Measures, the significant financial matters of outbound-investment enterprises (projects) include but are not limited to merger, split, termination, liquidation, change of capital, significant financing, foreign investment, foreign guarantee, treatment of significant assets, loss on significant assets, profit distribution, significant tax matters, engagement in trading of financial products and other high-risk business.
If any of the significant financial matters above are related to the appraisal of assets, they shall be subject to the Asset Appraisal Law of the People's Republic of China, unless otherwise specified in laws or regulations of outbound countries (regions).

Article 20 If the laws or regulations of outbound countries (regions) have no prohibitive provisions, state-owned enterprises shall strengthen the fund control for outbound-investment enterprises (projects), or centralized uniform management if eligible.

Article 21 State-owned enterprises shall urge outbound-investment enterprises (projects) to establish and improve their bank account management systems.
State-owned enterprises shall master the opening, revocation, significant transactions and other conditions of the bank accounts of outbound-investment enterprises (projects).

Article 22 State-owned enterprises shall urge outbound-investment enterprises (projects) to establish and improve their co-signing system for fund transfer.
General fund transfer shall be subject to the signature and authorization by the handler of outbound-investment enterprises (projects) and authorized managers. Any significant fund transfer shall be subject to signature and authorization by two or more of the president, general manager and financial principal, one of whom shall be the financial principal.
There shall be no immediate family or significant interested relationship among the co-signers.

Article 23 State-owned enterprises shall urge outbound-investment enterprises (projects) to establish and improve their cost management system and enhance their budget control.
State-owned enterprises shall focus on the legitimacy and compliance of the expenditure scopes, standards and reimbursement approval systems for commission, kickback, handling charges, labor expenses, royalty, rebates, slotting allowances, business bonus and other expenses.

Article 24 State-owned enterprises shall urge outbound-investment enterprises (projects) to establish and improve their legitimate and rational remuneration systems.

Article 25 A State-owned enterprise shall, based on its articles of association, investment agreements, resolution of the board of directors and other methods in compliance with laws or regulations of outbound countries (regions), request outbound-investment enterprises (projects) to distribute the full-amount stock dividend on time (project earnings) and make their declaration of tax payment according to the relevant tax-levying laws.
Where the stock dividend receivable of domestic state-owned enterprises is required to be returned domestically according to the relevant administrative provisions on foreign exchanges, such dividend shall be returned in due time.

Article 26 A state-owned enterprise launching outbound investment shall, in accordance with the relevant administrative provisions on foreign exchanges, go through the foreign-exchange registration for outbound investment and other formalities, including purchase and payment of foreign exchanges, transfer of foreign-exchange funds, exchange settlement and stock equity registration, etc.

Article 27 If there are no prohibitive provisions in laws or regulations of outbound countries (regions), a state-owned enterprise shall involve outbound-investment enterprises (projects) in its information system for financial management.
State-owned enterprises shall request outbound-investment enterprises (projects) to properly keep the vouchers, account books, statements and other accounting documents that shall be filed regularly. Annual financial reports, auditors' reports, significant decision-making minutes and other important files shall be reserved permanently and submitted to domestic state-owned enterprises for filing in the form of written or electronic data, unless specified in prohibitive provisions of laws or regulations of outbound countries (regions). Files not subject to permanent reservation shall be reserved for the longer term as specified in the record-filing provisions of China and outbound countries (regions).

Chapter V Financial Supervision of Outbound Investment

Article 28 A state-owned enterprise shall establish and improve its internal financial supervision system for outbound investment.

Article 29 With respect to outbound-investment enterprises (projects) that have sustained cumulative large-amount loss for three consecutive years, serious losses or other significant risks, a state-owned enterprise shall conduct spot supervision and inspection or entrust an intermediary for audit, and take corresponding measures according to the audit or supervision.
In the case of any loss incurred to any outbound-investment enterprise (project) for rational reasons, such as long investment pay-off period or undertaking only research and development business, no spot supervision and inspection or audit may be carried out upon the approval of the internal decision-making institution of such state-owned enterprise.

Article 30 A state-owned enterprise shall, giving play to its internal audit, establish and improve the system for auditing of the off-post of the principal of outbound-investment enterprises (projects) and liquidation audit.
Where a state-owned enterprise has no clear requirements for the employment period of principal of outbound-investment enterprises (projects) and financial principal, and the relevant personnel have been employed for five years, spot supervision and inspection shall be carried out for the financial management of outbound-investment enterprises (projects).

Article 31 State-owned enterprises shall, in accordance with the law, accept the financial supervision and inspection carried out by competent financial authorities, as well as the audit supervision by national audit authorities.
The results of the supervision above shall serve as an important reference for relevant departments under people's governments at the same level to launch the management of outbound investment by state-owned enterprises.

Article 32 Where any competent financial authority and its staff commits any abuse of power, neglect of duty or favoritism, or releases State secrets or commercial secrets of an enterprise in the financial supervision and inspection, such authority or its staff shall be held liable in accordance with the Civil Servant Law of the People's Republic of China, the Law of the People's Republic of China on Administrative Supervision and other relevant national provisions; if suspected of committing a crime, such authority or its staff shall be transferred to judicial authorities for treatment.

Article 40 A state-owned enterprise group company shall summarize and form its own annual financial affairs, which shall, by the end of April of the following year, be submitted to the competent financial authority together with its annual financial report.

Article 34 Competent financial authorities shall set up the databases of financial reports on outbound investment by state-owned enterprises to analyze and monitor the financial operation of outbound investment, and formulate and improve relevant policies and measures.

Chapter VI Performance Evaluation of Outbound Investment

Article 35 A state-owned enterprise shall establish and improve its performance evaluation system for outbound investment and launch evaluations of the management and benefits of outbound-investment enterprises (projects).

Article 36 A state-owned enterprise shall, according to the characteristics of different outbound-investment enterprises (projects), set up a reasonable evaluation indicator system.

Article 38 For outbound-investment enterprises (projects), a state-owned enterprise shall set up a performance evaluation cycle in which the short term, mid-term and long term are combined.
For outbound-investment enterprises (projects) that meet the requirements of national strategies with long investment terms, a differentiated performance evaluation cycle shall be reasonably set.

Article 38 State-owned enterprises shall organize the implementation of performance evaluation of outbound-investment enterprises (projects) and compile performance evaluation reports. Intermediary institutions of asset appraisal or other organizations may be entrusted to launch the relevant work if necessary.

Article 38 A performance evaluation report shall serve as an important basis for the internal optimization and allocation of resources by a state-owned enterprise.
With regard to outbound-investment enterprises (projects) with non-ideal performance evaluation results for the long term, state-owned enterprises shall deal with them by close-down or liquidation, equity transfer or other means.

Article 40 A state-owned enterprise group company shall summarize and compile its own annual report of performance evaluation of outbound investment, which, individually or together with its annual financial report, shall be reported and submitted to the competent financial authority.

Article 41 The annual report on performance evaluation of the outbound investment of a state-owned enterprise group shall comprehensively reflect the achievements of outbound investment and serve as an important reference for people's governments at the same level to evaluate the result of implementation of the "going-out" policy, formulate and improve relevant policies and inject state-owned capital, etc.

Chapter VII Supplementary Provisions

Article 42 The Measures shall be applicable to the outbound investment launched by non-state-owned enterprises.
The measures for the financial management of outbound investment by financial enterprises will be formulated separately.

Article 43 In accordance with the Measures, a state-owned enterprise group company shall establish and improve its financial management system for outbound investment that meets its actual situation, and strengthen its management of internal training, internal selection and external employment for financial management talents engaging in outbound investment.

Article 44 The Measures shall come into force as of August 1, 2017.