China enacts further Measures for Security Review of Foreign Investment

China

On 19 December 2020, the National Development and Reform Commission ("NDRC") and the Ministry of Commerce ("MOFCOM") jointly issued the Measures for Security Review of Foreign Investment (the "Measures"). The Measures took effect on 18 January 2021. Stipulations on security review of foreign investment are not new in the People's Republic of China ("PRC") and can be traced back as early as to the review of foreign-related M&A projects regulated in the then-effective Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors. Under the existing PRC laws and regulations, foreign investments related to certain security-related industries, such as military, national defense as well as certain key agricultural products, energy, resources and infrastructures of foreign investment, are subject to security review.

The Measures consist of 23 articles and are made on the basis of existing laws and regulations of the PRC such as the PRC Foreign Investment Law and the PRC State Security Law. Below is an overview on the key issues of the Measures.

1. The Current PRC Security Review System

Before the Measures were issued, provisions related to national security review are mainly included in:

  • the PRC Anti-Monopoly Law (issued on 30 August 2007 and effective since 1 August 2008),
  • the Circular of the General Office of State Council on Establishing the Security Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors (issued on 3 February 2011 and effective since 4 March 2011),
  • the Provisions of the Ministry of Commerce on the Implementation of the Safety Review System for Merger and Acquisition of Domestic Enterprises by Foreign Investors (issued on 25 August 2011 and effective since 1 September 2011),
  • the Circular of the General Office of the State Council on Issuing the Tentative Measures for the National Security Review of Foreign Investment in Pilot Free Trade Zones (issued on 8 April 2015 and effective since 8 May 2015),
  • the PRC State Security Law (issued on and effective since 1 July 2015),
  • the PRC Foreign Investment Law (issued on 15 March 2019 and effective since 1 January 2020), and
  • the Implementing Regulations of the PRC Foreign Investment Law (issued on 26 December 2019 and effective since 1 January 2020).

Article 35 of the PRC Foreign Investment Law confirms that the State shall establish a security review system for all relevant foreign investment, under which security review shall be conducted for foreign investment influencing or possibly influencing State security. Similar provisions are included in Article 59 of the PRC State Security Law, which states that the State shall establish systems and mechanisms for national examination and supervision, carry out State security examination on foreign investment, specific items, key technology, network information technology products and services, construction projects related to State security, and other significant matters and events, so as to prevent and neutralize State security risks in an effective way.

Now, the Measures, in a further step, establish and provide more detailed provisions for the security review system of foreign investment as intended by the PRC Foreign Investment Law and the PRC State Security Law.

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