Greenberg Traurig Alert-The People’s Republic Strikes Back? China Issues National Security Review Regulations for Foreign-Funded M&A

Greenberg Traurig Alert-The People’s Republic Strikes Back? China Issues National Security Review Regulations for Foreign-Funded M&A

Nearly five years after issuing the first rules on the subject,1 and following several years of merger control business concentration filings,2 on February 3, 2011 the PRC State Council promulgated the Circular on Establishing the Security Examination System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (the "Security Review Circular" or the "Circular"). The Circular, which takes effect March 3, 2011, also serves to implement Article 31 of the PRC Anti-Monopoly Law (AML), which took effect in August 2008.

The Security Review Circular both establishes general national security review procedures for various categories of foreign investments and provides for establishment of the "Inter-Ministerial Joint Conference on Security Review of Mergers and Acquisitions of Domestic Enterprises by foreign Investors" (the "Joint Conference"). The Circular's issuance follows several high-profile rejections (or voluntary termination) of proposed Chinese acquisitions on national security grounds in the U.S. and elsewhere.

The Security Review Circular leaves many questions unanswered. Most prominent is whether the Circular will bring greater procedural transparency to an opaque and unstructured process or, consistent with Chinese perceptions of the Committee on Foreign Investment in the United States (CFIUS), serve mainly to establish a highly politicized forum for protectionist interests.

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Attachment: Greenberg Traurig Alert-The People’s Republic Strikes Back.pdf