Since February 2011, all foreign
mergers and acquisitions of domestic Chinese enterprises in certain sectors
have been subject to national security reviews. These interim regulations will
be replaced on September 1 by new and clarified regulations. The new
regulations introduce no significant changes but clarify thresholds and
characteristics that will trigger a national security review.
Background: On February 3, 2011, the
General Office of State Council promulgated a Circular on Establishment of
the Security Review System for Merger and Acquisition of Domestic Enterprises
by Foreign Investor (Guobanfa No.6) 国务院办公厅关于建立外国投资者并购境内企业安全审查制度的通知(国办发6号) ("Circular 6") on guiding Merger
and Acquisition ("M&A") of domestic enterprises by foreign investors.
Under Circular 6, the scope of
M&A security review was set as follows: foreign investors' M&A of
domestic military industry enterprises and its ancillary enterprises, the
enterprises around the key and sensitive military facilities and other units
which have impact on national defense security. Foreign investors' M&A of
domestic enterprises which have impact on national security, in fields of
important agricultural products, important energy and resources, important
infrastructure, important transportation service, key technology and major
equipment manufacturing, etc and which may result in foreign investors'
acquirement of actual control over the enterprises.
On August 25, 2011, the Ministry of
Commerce ("MOFCOM") promulgated Provisions on the Security Review Mechanism
for the Merger and Acquisition of Domestic Enterprises by Foreign Investors
(Shangwubugonggao No.53)商务部实施外国投资者并购境内企业安全审查制度的规定(商务部公告2011年第53号) ("Provisions") which is an
operating rule of Circular 6. This Provision shall come into effect as of
September 1, 2011.
Some key provisions:
Timeline for security review: MOFCOM
shall notify the applicant in writing within 15 working days after the receipt
of the application documents and submit to ministerial panel for review and
approval within 5 working days after the date of notification ("Date of
Notification"). The applicant cannot conduct the M&A transaction within the
15 working days after the Date of Notification. If the applicant do not get
further written notice from MOFCOM within 15 working days after the Date of
Notification, the applicant can proceed with the relevant formalities according
to laws and regulations.
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