Alert 12.16.20
Alert
Alert
12.22.20
On December 19, 2020, China’s National Development and Reform Commission (NDRC) and Ministry of Commerce (MOFCOM) jointly issued the Measures for the Security Review of Foreign Investment (Security Review Measures), which will take effect in 30 days (i.e., January 18, 2020). The Security Review Measures follow China’s Foreign Investment Law, which took effect on January 1, 2020, and were aimed at broadening market access for foreign investors. Below is a high-level summary of the Security Review Measures.
TRANSACTIONS AND SECTORS SUBJECT TO SECURITY REVIEW
Types of Investment/Transactions subject to Review
Any foreign investments in China that impact or potentially impact the national security of China are subject to security review, which include any investment carried out by foreign investors directly or indirectly in the territory of China in the following transactions:
Covered Sectors
Foreign investment in the following sectors is subject to national security review:
Reviewing Authorities
A foreign investment security review working mechanism (Working Mechanism) will be established to be responsible for organizing, coordinating and guiding foreign investment security review work. The office of the Working Mechanism is established at the NDRC, and both NDRC and MOFCOM will take the lead and undertake the daily work of foreign investment security review.
Review System and Procedures
The Security Review Measures establish a three-stage review system and procedures.
OUR OBSERVATIONS
On July 1, 2015, China also promulgated the PRC National Security Law (NSL), which is the most comprehensive national security legislation to date in China. On January 1, 2020, the Foreign Investment Law of China (FIL) and its implementation regulations came into effect, which establish the new foreign investment regulatory framework in China. (See our series of client alerts regarding FIL here.) The Security Review Measures mark a key step forward to implement the FIL and the NSL.
Coincidentally, on December 18, 2020, the U.S. Department of Commerce Bureau of Industry and Security (BIS) added 59 Chinese mainland entities and individuals and one Hong Kong company to the Entity List for activities that the U.S. government deemed to be contrary to the national security or foreign policy interests of the United States.
The promulgation of the Safety Review Measures signals that China is making a consolidated strong effort to implement a more unified and comprehensive system to keep strict monitoring on investment and transactions that might have national security implications.
Foreign investors are recommended to be mindful of China’s national security review system and pay attention to the proposed transactions and investment (directly or indirectly) in the industries that are target for national security review. Investment plan, schedule, and terms and conditions for closing for investment in China should take into account the timing and contingency of obtaining national security approval.