China's Measures for Security Review of Foreign Investment

Co-released by China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM), the new Measure for Security Review of Foreign Investment aims at maintaining national security while promoting foreign investment. Released on December 19, 2020, enter into force on January 18, 2021.

The Measure applies to (1) foreign investors, alone or jointly with other investors, who invest in new projects or establish enterprises in China; (2) foreign investors who obtain equity or assets of domestic enterprises through M&A; (3) foreign investors who invest in China by any other means.

Investments subject to the Measure

1. Foreign investment in the military industry, including military facilities, investment in the surrounding areas of military industry facilities and other national and security related areas
2. Foreign investment in key areas related to national security, which includes agricultural products, energy and resources, equipment manufacturing, infrastructure, transportation services, cultural products and services, IT and internet products and services and financial services where such investment obtain the actual control of the invested enterprises.

In reference to ‘the actual control of the invested enterprises’, the term includes the following situations:

(1) foreign investors hold more than 50% of the shares

(2) foreign investors hold less than 50% of shares but their vote can significantly impact decisions of the board of directors or during shareholders’ meeting

(3) other situations in which foreign investors have significant influence in operational decisions, personnel and finances aspect of the enterprise.

The review will be led by NDRC and MOFCOM and the office will be located within NDRC.

Material to submit

Any investment that is within the scope listed above must be submitted to the review office by investors and concerned parties within China. The material to submit for the review are:

(1) Declaration form

(2) Investment plan

(3) Explanation on whether foreign investment affects national security

(4) Other materials required by the review office

The declaration shall specify the name, domicile, business scope and investment of the foreign investor. Applicants can modify or cancel the investment plan while undergoing the security review.

Review process based on a three-tiered system

Tier 1: Security Review Submission (15 working days). Once applicants submit the relevant material, the review office has 15 working days to decide whether the application needs to undergo a general security review. If not, the applicant may start to implement the investment.

Tier 2: General Security Review (up to 30 working days). The review office will have 30 days to inform applicants whether the project impacts national security and must undergo a special review. If the review office decides that it does not impact national security, investors may move forward with the project.

Tier 3: Special Review (60 working days). The review office will need 60 working days or more under special circumstances to conduct the special review. The review office can reject the project for national security reasons or provide either a full or conditional approval. Conditional approval requires that involved parties accept additional conditions that would “mitigate (the projects) potential impact on national security”.

Full Text in Chinese