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PRC Legal Update: New Rules on National Security Review of Foreign Investment


PRC National Development and Reform Commission (the “NDRC”) and Ministry of Commerce (the “MOFCOM”) jointly published the Measures for the Security Review of Foreign Investment (the “Measures”) on 19 December 2020. The Measures took effect on 18 January 2021.

The Measures set out the categories of foreign investments that will be subject to national security review, the reviewing authority, scope and procedures for the review, enforcement supervision, and penalties for non-compliance in relation to the national security review of foreign investment in the PRC mainland market. The Measures were promulgated pursuant to the PRC Foreign Investment Law which came into effect on 1 January 2020 and the PRC National Security Law which came into effect on 1 July 2015.

SCOPE OF THE MEASURES

Under the new Measures, where a foreign investment is made in the specified categories (see below), the investor must submit to the Foreign Investment Security Review Office (the “Review Office”) jointly established by the NDRC and MOFCOM an application for security review. The new Measures classify foreign investments as where a foreign investor: –

(a) whether solely or jointly, invests in, new projects or establishes a new enterprise in the PRC;

(b) acquires the equity interest or assets of an onshore PRC enterprise; or

(c) makes an investment in the PRC by any other means.

The scope of the Measures also covers investments by investors from Taiwan, Hong Kong and Macau.

The Measures cover the following categories of investments: –

(a) any investment involving the military industry, the military supporting industry and other industries which relate to national defence, or in the areas surrounding military installations and military facilities; and

(b) any investment which would result in a controlling stake of a PRC enterprise involved in the business of important agricultural products, important energy and resources, important equipment manufacturing, important infrastructure, important transportation services, important cultural products and services, important information technology and internet products and services, important financial services, key technologies and other important sectors.

In respect of the definition of “controlling stake”, the Measures set out that a foreign investor is deemed to have a controlling stake if it (1) holds more than 50% of the equity of an enterprise; (2) holds a significant portion of voting rights which may have a significant impact on the resolutions of the board of directors (notwithstanding if it holds less than 50% of the equity); or (3) possesses a significant impact on the business decision-making, human resources, finance, and technology of the enterprise.

THE REVIEWAL PROCESS

A foreign investor may make consultations to the Review Office prior to making a formal submission. In making an application with the Review Office, the foreign investor must submit the designated documents required by the Measures, including but not limited to an application report, an investment plan, a statement on whether the foreign investment will have any impact on national security, and any other documents required by the Review Office. After an application has been submitted, the Review Office will conduct a preliminary review within 15 days from the application to determine whether a general security review will be necessary.

If a general security review is required, the Review Office may, within 30 days upon commencement of the review, determine that (a) the foreign investment does not pose an adverse impact on national security and therefore has passed the review; or (b) the investment may pose an adverse impact on national security and a special review is required.

If a special review is required,…



Read More:PRC Legal Update: New Rules on National Security Review of Foreign Investment

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