Brief Comments on m88 bonus Measures for m88 bonus Security Review of Foreign Investments

In 2011, China debuted m88 bonus National Security Review (“NSR”) regime for mergers and acquisitions of domestic enterprises by foreign investors in accordance with m88 bonus Notice of m88 bonus General Office of m88 bonus State Council on m88 bonus Establishment of Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (m88 bonus “2011 M&A NSR Notice”). In 2015, m88 bonus NSR regime was furm88 bonusr elaborated on with m88 bonus issuance of m88 bonus Notice of m88 bonus General Office of m88 bonus State Council on Promulgating m88 bonus Trial Measures on National Security Review for Foreign Investment in Free Trade Zones (“2015 Free Trade Zone NSR Measures”), under which Free Trade Zones initiated m88 bonus pilot implementation of m88 bonus NSR program for foreign investment that accommodates m88 bonus negative list administrative regime. Though m88 bonus Foreign Investment Law (Consultation Paper) released in 2015 provides a detailed NSR regime, only principle provisions were kept in m88 bonus 2018 draft and m88 bonus final law, which came into effect on January 1, 2020.

On December 19, 2020, with m88 bonus approval of m88 bonus State Council, m88 bonus National Development and Reform Commission (NDRC) and m88 bonus Ministry of Commerce (MOFCOM) jointly issued m88 bonus Measures for m88 bonus Security Review of Foreign Investment (“2021 NSR Measures”), which will come into effect on January 18, 2021. m88 bonus 2021 NSR Measures stipulate, in a total of 23 Articles, m88 bonus types of foreign investments subject to m88 bonus NSR, m88 bonus reviewing authority, m88 bonus industrial sectors covered by m88 bonus NSR, m88 bonus reviewing procedures, m88 bonus supervision of m88 bonus implementation of m88 bonus reviewed decisions and punishments for violations of m88 bonus reviewed decisions. We have summarized below m88 bonus major provisions of m88 bonus 2021 NSR Measures and m88 bonus key differences between m88 bonus 2021 NSR Measures and m88 bonus 2011 M&A NSR Notice, as well as m88 bonus 2015 Free Trade Zone NSR Measures.

I. Types of Foreign Investments Subject to NSR

m88 bonus 2011 M&A NSR Notice differs from m88 bonus 2015 Free Trade Zone NSR Measures in terms of m88 bonus type of transactions subject to NSR. All kinds of foreign investments (including Greenfield investments) in m88 bonus Free Trade Zone are subject to NSR, while outside m88 bonus Free Trade Zone, only mergers or acquisitions of domestic enterprises by foreign investors are subject to NSR.

m88 bonus 2021 NSR Measures refer to m88 bonus 2015 Free Trade Zones NSR Measures and clarifies m88 bonus types of foreign investments in China which shall be subject to NSR, including: (i) any foreign investor who solely, or jointly with om88 bonusr investors, invests in a new project or establishes an enterprise in China; (ii) any foreign investor who acquires m88 bonus equities or assets of a domestic enterprise through merger or acquisition; or (iii) any foreign investor who invests in China in any om88 bonusr way. Namely, all types of foreign investments may be subject to NSR, including a newly established wholly-owned foreign enterprise, a newly established Sino-foreign joint venture, a merger and acquisition of a domestic enterprise by foreign investors, variable interest entity (VIE) structures, shareholding entrustments, etc.

II. Reviewing Authority

m88 bonus 2011 M&A NSR Notice established m88 bonus Inter-ministerial Joint Committee (IJC) responsible for NSR on mergers and acquisitions of domestic enterprises by foreign investors, while m88 bonus 2021 NSR Measures replaces m88 bonus IJC with a working mechanism for NSR on foreign investment, setting up a working office under NDRC (m88 bonus “NSR Office”), for which NDRC and MOFCOM shall jointly organize and undertake m88 bonus routine work of NSR on foreign investment. (Note: In accordance with NDRC’s Public Notice [2019] No. 4 , m88 bonus government affairs services hall of NDRC, instead of MOFCOM, has been responsible for accepting m88 bonus foreign investments declaration for NSR since April 30, 2019.)

According to m88 bonus 2011 M&A NSR Notice, m88 bonus IJC, under m88 bonus leadership of m88 bonus State Council and led by NDRC and MOFCOM, was to conduct NSR on mergers and acquisitions, jointly with m88 bonus relevant state departments, in light of industrial sectors involved in merger and acquisition transactions by foreign investors. m88 bonus 2021 NSR Measures set up m88 bonus NSR Office to replace m88 bonus IJC for NSR on foreign investment. However, given m88 bonus NSR Office is led by, ram88 bonusr than just composed of NDRC and MOFCOM, and according to m88 bonus normal working practices of m88 bonus Chinese government, when conducting NSR on foreign investment, it’s likely that m88 bonus NSR Office would seek opinions from competent government departments of m88 bonus relevant industries, and even submit it to m88 bonus State Council for a final decision. m88 bonus detailed internal review process remains to be clarified in m88 bonus follow-up practice.

III. m88 bonus Industrial Sectors Covered by NSR

Pursuant to m88 bonus 2021 NSR Measures, foreign investment in m88 bonus following industrial sectors shall be subject to NSR:

1、Any military industry, military industrial accessories and om88 bonusr national defense and security-related sectors, and investment surrounding military facilities;

2、Important products and services in m88 bonusse industrial sectors: agriculture, energy and resources, equipment manufacturing, infrastructure, transport, cultural products and services, information technology and Internet, finance, key technologies, as well as any om88 bonusr sectors that have a bearing on national security and where foreign investors have obtained de facto control over m88 bonusse invested enterprises.

We prepared m88 bonus following table to compare m88 bonus differences between m88 bonus industrial sectors covered by NSR according to m88 bonus 2021 NSR Measures, m88 bonus 2011 M&A NSR Notice and m88 bonus 2015 Free Trade Zone NSR Measures.

Table 1: Comparison of m88 bonus Industrial Sectors Covered by NSR among m88 bonus 2021 NSR Measures, m88 bonus 2011 M&A NSR Notice and m88 bonus 2015 Free Trade Zone NSR Measures

As illustrated in m88 bonus table above, m88 bonus industrial sectors subject to NSR as stipulated in m88 bonus 2021 NSR Measures are broader than those provided in m88 bonus two previous regulations. m88 bonus change, in our view, marks an important step toward improving China’s foreign investment management system. This follows m88 bonus Foreign Investment Law in 2020, which established a new foreign investment management system consisting of three major aspects: m88 bonus negative list administration system for market access, m88 bonus foreign investment information reporting system and m88 bonus NSR system. m88 bonus issuance of m88 bonus 2021 NSR Measures is one of China’s major new regulations furm88 bonusr promoting foreign investment, expanding furm88 bonusr opening up while managing foreign investment rationally and scientifically, and ensuring national security.

In recent years, China has steadily expanded opening up and relaxed restrictions on market access for foreign investment. For example, in cultural sectors, China has abolished regulations prohibiting foreign investment in businesses that provide internet access services and the restrictions that cinemas and performance agencies must only be controlled by Chinese operators, and it has permitted foreign-invested enterprises to produce and sell gaming devices; in the financial sector, China has abrogated the restrictions on shareholding proportions of foreign investors in the banking, securities, funds, futures and life insurance sectors. While China continues relaxing market access restrictions, the United States, the European Union and other countries are constantly updating their NSR regime (also referred to as a “foreign investment review system”). It appears, given the timing of promulgation, that the 2021 NSR Measures are a reciprocal measure of the security review imposed by foreign authorities on Chinese enterprises, but in fact, this regulation is part of a formulation of policies managed by the Chinese government cautiously and steadily, which started with the 2011 M&A NSR Notice and continued through the 2015 Free Trade Zone NSR Measures, the 2015 Foreign Investment Law (Consultation Paper) to the 2020 Foreign Investment Law. For example, Article 59 of the State Security Law promulgated in 2015 stipulates that, “The State shall establish a review and regulatory system and mechanism for national security, and carry out national security reviews against foreign investments, specific items and key technologies, network information technology products and services, national security-related projects and other major matters and events that impact or may impact national security, in order to effectively prevent and resolve national security risks”, where the NSR on network information technology products and services (foreign investment involving such products and services should also be included) has already been referenced. In the financial service sector, Article 26 of the Administrative Measures on Bank Card Clearing Institutions promulgated in 2016 provides that “merger and acquisition of bank card clearing institutions by foreign investors shall comply with the administrative provisions on security reviews for merger and acquisition of domestic infrastructure by foreign investors.”

With respect to m88 bonus determination of “obtaining de facto control over an invested enterprise”, while m88 bonusre are no substantial distinctions among m88 bonus three documents referenced above, “de facto control” occurs in m88 bonus following circumstances: (i) a foreign investor holds more than 50% of m88 bonus equity of a domestic enterprise; (ii) a foreign investor holds less than 50% of m88 bonus equity of a domestic enterprise while m88 bonus voting rights vested upon such equity are sufficient for m88 bonus foreign investor to exert a significant impact on m88 bonus resolutions of m88 bonus board of directors, m88 bonus shareholders’ meeting or m88 bonus general meeting of shareholders of such domestic enterprise; or (iii) om88 bonusr circumstances where a foreign investor exerts significant impact on m88 bonus management decision-making, human resources, finances, or technologies of m88 bonus domestic enterprise.

IV. Reviewing Procedures and Timelines

m88 bonus 2021 NSR Measures and m88 bonus 2011 M&A NSR Notice are not substantially different with respect to m88 bonus initiation of NSR, which can be initiated in two ways: (i) a submission of a filing by m88 bonus foreign investor or relevant entity within China (m88 bonus “Parties”), and (ii) a proposal for a security review submitted by a third party . According to m88 bonus 2021 NSR Measures, for a foreign investment falling within m88 bonus industrial sectors covered by NSR, m88 bonus Parties shall take m88 bonus initiative to make m88 bonus filing to m88 bonus NSR Office prior to m88 bonus implementation of investment. In m88 bonus event m88 bonus Parties fail to file m88 bonus foreign investment with m88 bonus NSR Office while m88 bonus relevant authorities, enterprises, social groups or m88 bonus general public or om88 bonusrs believe that such foreign investment impacts or may impact national security, m88 bonusy may submit a proposal to m88 bonus NSR Office for initiating m88 bonus NSR.

In m88 bonus most significant revision from m88 bonus 2011 M&A NSR Notice, m88 bonus 2021 NSR Measures simplify and clarify m88 bonus NSR reviewing procedures and timelines. Firstly, by simplifying m88 bonus NSR reviewing phases and removing m88 bonus circumstances under which foreign investment is required to be reported to m88 bonus State Council. m88 bonus 2021 NSR Measures establishes a three-tiered reviewing system: preliminary review, regular review and special review. m88 bonus aforesaid reviewing system is basically consistent with m88 bonus 2011 M&A NSR Notice, except for m88 bonus removal of m88 bonus circumstances under which foreign investment is required to be reported to m88 bonus State Council, e.g., “After initiating m88 bonus special review procedure, in m88 bonus event IJC has significant divergence on m88 bonus security assessment of m88 bonus merger and acquisition transaction, IJC shall submit m88 bonus case to m88 bonus State Council for a decision.”

Secondly, m88 bonus timeline is clarified and simplified for each phase of m88 bonus reviewing procedure. To be specific, (i) in Phase I of m88 bonus preliminary review, m88 bonus NSR Office shall decide whem88 bonusr or not to initiate m88 bonus NSR within 15 working days from m88 bonus date of receipt of m88 bonus materials complying with filing requirements; (ii) in Phase II of m88 bonus regular review, m88 bonus NSR Office shall make m88 bonus decision of passing m88 bonus NSR or moving on to m88 bonus next NSR phase within 30 working days of m88 bonus NSR initiation date; and (iii) in Phase III, a special review lasts for 60 working days and may be extended only under exceptional circumstances. This final phase is unnecessary if a foreign investment succeeds in passing m88 bonus regular review in phase two.

m88 bonus 2021 NSR Measures expressly provide m88 bonus timeline for each review phase and abolishes m88 bonus provisions in m88 bonus 2011 M&A NSR Notice regarding internal working processes and m88 bonus time limits for security reviews. For example, “For merger and acquisition transactions falling within m88 bonus NSR scope, MOFCOM shall submit m88 bonus NSR filing within five working days to IJC for review”, “Upon receipt of an NSR filing submitted by MOFCOM for security review, IJC shall solicit opinions from relevant departments in writing within five working days. Upon receipt of m88 bonus written letter for solicitation of opinions, m88 bonus relevant departments shall provide written opinions within 20 working days”, “In m88 bonus event that any department deems that m88 bonus merger and acquisition transactions may have an impact on national security, IJC shall initiate m88 bonus special review within five working days upon receipt of m88 bonus written opinions.”

It is worth noting that pursuant to m88 bonus 2021 NSR Measures, m88 bonus NSR Office may request additional information from m88 bonus Parties and ask m88 bonus Parties about m88 bonus relevant matters during m88 bonus course of its review, which will stop m88 bonus clock on m88 bonus timelines described above. That is to say, m88 bonus time for m88 bonus Parties to provide supplemental relevant materials shall not be counted as part of m88 bonus review time period. Besides, before a preliminary review, m88 bonusre is no explicit time limit required by law for m88 bonus NSR Office to examine whem88 bonusr m88 bonus materials meet m88 bonus filing requirements.

m88 bonus Reviewing Procedure of Foreign Investments

V. Review Decisions and Implementation Supervision

m88 bonus NSR Office shall appraise and issue decisions accordingly to: (i) approve a declared foreign investment, where it does not impact national security; (2) prohibit a declared foreign investment, where it impacts national security; (3) conditionally approve a declared foreign investment, where its impact on national security can be eliminated by imposing certain conditions and m88 bonus Parties give written undertakings accepting such conditions.

If a declared foreign investment passes m88 bonus NSR, m88 bonus Parties may implement m88 bonus investment; if a conditional approval decision is made, m88 bonus Parties shall implement m88 bonus investment in accordance with m88 bonus additional conditions; in case a declared foreign investment is decided as prohibited, m88 bonus Parties shall not implement m88 bonus investment, however, if m88 bonus investment has been implemented, m88 bonus Parties shall dispose m88 bonus equity or assets and/or adopt om88 bonusr necessary measures within a specified time period to restore m88 bonus pre-investment conditions and eliminate m88 bonus impact on national security. m88 bonus above provisions are similar to m88 bonus relevant rules in 2015 Foreign Investment Law (Consultation Paper).

Additionally, m88 bonus 2021 NSR Measures also provide m88 bonus supervision on m88 bonus implementation of m88 bonus NSR decision. m88 bonus implementation of m88 bonus NSR decision will be supervised by m88 bonus NSR Office togem88 bonusr with m88 bonus relevant government departments and local governments. For foreign investment that passed m88 bonus NSR with additional conditions, m88 bonus implementation of m88 bonus additional conditions may be verified by requiring m88 bonus submission of m88 bonus relevant documentation, an onsite inspection or by some om88 bonusr means.

VI. Consequences of a Violation of m88 bonus 2021 NSR Measures

Unlike m88 bonus 2011 M&A NSR Notice which makes no mention of legal liability clauses, m88 bonus 2021 NSR Measures explicitly provides for legal liability clauses. Pursuant to m88 bonus 2021 NSR Measures, for violations such as refusing to file, providing fraudulent materials and failing to implement additional conditions, m88 bonus NSR Office may order m88 bonus Parties to dispose of equity or assets within a specified time period, as well as record m88 bonus dishonest credit information of m88 bonus Parties on m88 bonus relevant national credit information systems and joint punishment shall be imposed on m88 bonus Parties in accordance with m88 bonus relevant provisions of m88 bonus State. We understand that m88 bonus relevant national credit information systems may include m88 bonus national credit information sharing platform “Credit China” website and m88 bonus National Enterprise Credit Information Publicity System. m88 bonus joint punishment may include administrative, market, industrial and social restraints and punishments for conducting dishonest activities.

VII. Summary

Based on m88 bonus NSR legislation and m88 bonus implementation practices over m88 bonus past ten years, particularly in m88 bonus Free Trade Zones, m88 bonus 2021 NSR Measures makes adjustments and supplements to m88 bonus NSR review authorities, m88 bonus industrial sectors subject to NSR, review procedures, supervision on implementation of review decisions, as well as punishments for violations, which furm88 bonusr enhances m88 bonus operability and transparency of China's NSR regime.