ANNOUNCEMENT 12 Feb 2011

In February 2011, the government of China announced a change in the technical requirements for goods market entry.

NUMBER OF INTERVENTIONS

1

  • 1 harmful
  • 0 neutral
  • 0 liberalising

SOURCE



Chinese Goverment, Chinese version available:
http://www.gov.cn/zwgk/2011-02/12/content_1802467.htm

Chinese Ministry of Trade and Commerce, Chinese version available:
http://www.mofcom.gov.cn/aarticle/b/c/201103/20110307432771.html?864660822=449827530


Inception date: 05 Mar 2011 | Removal date: open ended
Still in force

Technical barrier to trade

On 12 February 2011, the Chinese State Council released the Notice on Establishing System of Security Review on Merger and Acquisition of Local Companies by Foreign Investors (Guo Ban Fa '2011' NO. 6, the 'Notice'), announcing to set a system for national security review on M&A of local companies by foreign investors. The Security Review -system is new in China, and it requires foreign investors to submit several documents and an application to the MOFCOM. The motivation of this measure is to protect "national security".
 
On 7 March 2011, the Chinese Ministry of Commerce (MOFCOM) released the Temporary Measures on Implementation of Security Review on M&A of Local Companies by Foreign Investors ('Measures', Notice No.8 '2011') to strengthen administration on M&A of local companies by foreign investors in China.
 
The Measures are adopted in accordance with the spirit of the Notice on Establishing System of Security Review on Merger and Acquisition of Local Companies by Foreign Investorsreleased by the State Council on February 12, 2011 (see REPORT: China Sets a National Security Review System on M&A of Local Companies by Foreign Investors, sent on February 16, 2011). The Measures are the detailed implementation of the Notice released by the State Council, providing detailed guidance for application by foreign investors on M&A of domestic companies which may influence the nation security. 
 
The Measures specified the detailed requirements for the application submitted by the applicant with specifying the materials and documents required by the MOFCOM. In addition, the Measures listed the detailed procedure for Security Review in accordance with the Notice on Establishing System of Security Review on Merger and Acquisition of Local Companies by Foreign Investors.
 
The Measures came into effect on March 5, 2011 (although it is published on the MOFCOM website on March 7, 2011), the effective period will be from March 5, 2011 to August 5, 2011. As the security review is a completely new system for China government, during the six-month effective period, relevant companies, individuals or associations may provide suggestions or opinions to the MOFCOM for further amendment after the effective period.
 
More information about the content of this Notice:
 

  1. The scope of the M&Asecurity review covers:

l Military defense companies or affiliated military defense companies, or companies around the key installations and sensitive military installations;
l Agricultural facilities, key energy facilities and resource facilities, fundamental infrastructure facilities, important transportation technology, key technologies and important equipment manufacturing companies that are relevant to national security, and through which the actual controlling rights are acquired by foreign investors.
 
2. Applicable M&A by Foreign Investors
l Purchasing equities or subscribing increased capital of a local companies, through which the local companies will be altered to a foreign invested company;
l Purchasing equities from Chinese party in a foreign invested companies or subscribing increased capital of a foreign invested company;
l Foreign invested companies established by foreign investors through which to purchase assets or equities of local companies;
l Foreign investors' direct purchasing assets of local companies, and through which to establish foreign companies to operate these assets.
 
3. Acquiring Actual Controlling Rights
Acquiring Actual Controlling Rights means a foreign investor becomes the controlling shareholder of a local company through a M&A, including:
l After the M&A, a foreign investor, its controlling parent company, subsidy company which controls 50% or more of the shares of one local company;
l After the M&A, all foreign investors hold 50 or of the shares of one local company;
l After the M&A, a foreign investor may hold less than 50% shares but have fundamental impact on resolutions made by shareholders meeting, general shareholders meeting or directors meeting;
l Other circumstances that may lead the actual controlling rights of management decision-making, finance, personnel or technology and other rights transferred to foreign investors.
 
4.M&A Security Review Content
l Evaluating influences on military defense, including influences on military needs of domestic production and service capability, and influences on relevant equipments and facilities;
l Evaluating influences on stable development of national economy;
l Evaluating influences on social life order;
l Evaluating influences on research and development of national key security technologies;
 
5.M&A Security Review Working Mechanism
l A Foreign Investment Security Review Board will be established under the leadership of the State Council.
l Members of the Board will be composed by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM), and other governmental authorities.
l Responsibilities of the Board:
A. Conducting analysis on influences of M&A of local companies by foreign investors; 
B. Discussing and coordinating fundamental problems in M&A of local companies by foreign investors;
C. Security Reviewing M&A of local companies by foreign investors and making decisions;
 
6.M&A Security Review Procedure
l Application shall be submitted to the MOFCOM before M&A of local companies by foreign investors. Where the submitted application is within the M&A Security Review Scope, the MOFCOM shall deliver the application to the Foreign Investment Security Review Board for security review;
l Where relevant departments of the State Council, national industrial associations, enterprises in the same industry and upstream and downstream enterprises hold that the M&A of local companies by foreign investors shall be put under the security review, they may provide their suggestions to the MOFCOM;
l Where the Foreign Investment Security Review Board holds that some a special case shall be under the security review, the Board may initiate the security review;
l A general review procedure will be firstly processed for one applicable M&A of local companies by foreign investors; if one applicable M&A of local companies by foreign investors does not pass through a general review, a special review procedure will be initiated.
A. After reception of application from the MOFCOM, the Board shall collect written opinions from relevant governmental authorities within 5 working days; relevant governing authorities shall deliver their opinions within 20 working days; 
B. Where relevant authorities hold that the M&A is harmless to the national security, the special review procedure will not be initiated; and the Board shall make the decision within 5 days after collecting all opinions from all relevant authorities and notice the MOFCOM in written;
C. Where any relevant authority holds that the M&A may influence the national security, the special review shall be initiated after reception of the written opinions; and the Board shall make a decision for initiation the special review procedure within 5 days;
D. Under the special review procedure, the Board shall conduct the security evaluation on the M&A of local companies by foreign investors; where there are no different opinions on the M&A, the Board shall make its own decisions; where fundamental different opinions arising, the Board shall submit the case to the State Council for decision.
l During the security review procedure, the applicant may apply for modifying or repealing the M&A transaction;
l M&A security review decision will be delivered to the applicant in written;
l Where the M&A transaction has lead or may lead material impact on national security, the Board may require the MOFCOM to request foreign investors to terminate the M&A transaction, or adopt equity or asset transfer measures, or adopt any other measures to eliminate influence on national security.
 
7.M&A Security Review Procedure
This is a complete new system for M&A business in China, and before promulgation of this Notice, M&A by foreign investors face few requirements. Foreign investments in M&A business may face more requirements and blocks in China after promulgation of this Notice. Through the articles of the Notice, some articles are too general for applications leaving too much space for further governmental regulations, so in the near future some more detailed measures may be announced by the NDRC and the MOFCOM.
 

AFFECTED SECTORS

 
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AFFECTED PRODUCTS

 
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