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
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