ANNOUNCEMENT 19 Dec 2020

December 19th, 2020 - The Chinese government announced the expansion of a screening process for inward FDI.

NUMBER OF INTERVENTIONS

2

  • 2 harmful
  • 0 neutral
  • 0 liberalising

SOURCE

PRC Ministry of Commerce, December 19th, 2020. (发展改革委 商务部令 第37号 外商投资安全审查办法)
http://wzs.mofcom.gov.cn/article/n/202012/20201203024662.shtml

Inception date: 18 Jan 2021 | Removal date: open ended

FDI: Entry and ownership rule

On December 19th, 2020, the Chinese Ministry of Commerce released Order 2020/37 (hereafter, 'Order'), updating the framework of 'National Security Review' for inbound foreign investments which expands the scope of investments subject to screening controls.

Prior to this measure, only direct investments were subject to this review (see related state act).  However, with the new regulation, indirect investments will also be subject to the national security review, thus making more foreign investments subject to screening controls.

As a result of the changes introduced, the following types of FDI are now subject to review:

  • Foreign investors investing in new projects or establishing enterprises in the territory [of the PRC], either alone or jointly with other investors.
  • Foreign investors acquiring equity or assets of domestic enterprises through mergers and acquisitions.
  • Foreign investors investing in the territory [of the PRC] through other means.

In general, the National Security Review process focuses on investments related to the military and defence industry as well as those that result in the 'actual control' of a foreign investor in companies from concrete sectors.

The sectors that were already subject to the 'National Security Review' were a) critical agricultural products, b) critical energy and resources, c) major equipment manufacturing, d) critical infrastructure, e) critical transportation services, f) key technologies and g) other essential industries. With the new regulation, these have also been expanded to include critical cultural products and services, critical information technology and internet products and services.

Besides to the scope expansion, the new regulation also expanded the applicability of the screening mechanism to investments carried out in areas near any military facilities (see related intervention).

Notably the new measure also created a whistle blower mechanism, a new working mechanism for the screening of new foreign investments and implemented a three-staged reviewing process.

The new rules contained in the Order went into effect from January 18th, 2021.

AFFECTED SECTORS

 
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AFFECTED PRODUCTS

 
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Inception date: 18 Jan 2021 | Removal date: open ended

FDI: Entry and ownership rule

On December 19th, 2020, the Chinese Ministry of Commerce released Order 2020/37 (hereafter, 'Order'), updating the framework of 'National Security Review' for inbound foreign investments which expands the scope of investments subject to screening controls.

According to the new regulation, the applicability of the screening mechanism has been expanded to cover all investments carried out by foreigners in areas close to any military facility. Previously, this test only applied to certain military facilities.

In addition, the Order also refers to some concrete sectors (see related intervention).

The new rules contained in the Order went into effect from January 18th, 2021.

 
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