Rajah & Tann Regional Round-Up
your snapshot of key legal developments in Asia
Issue 1 - Jan/Feb/Mar 2021
 

China Expands Foreign Investment Security Review Rules

On 18 January 2021, the Measures for Security Review of Foreign Investment (外商投资安全审查办法) ("SR Measures"), which was jointly issued by the PRC National Development and Reform Commission ("NDRC") and the Ministry of Commerce ("MOFCOM") on 19 December 2020, took effect. The SR Measures consist of 23 rules, covering among others the types of foreign investment which will be subject to review, the regulatory authority, scope of national security review, review procedures and timelines, and implementation and consequences of violations.


Compared with the existing PRC national security review mechanism introduced in 2011 that focused exclusively on the mergers and acquisitions of domestic enterprises by foreign investors, and the national security review trial regime launched in 2015 applicable only in the free trade zones, the SR Measures have introduced a revised national security review regime, expanding its application nationwide for different types of foreign investment. These include not only direct investment through acquisitions, but also indirect investment and "greenfield" investment in the form of establishing a wholly foreign-owned subsidiary or a joint venture. As for the sectors covered by security review, the SR Measures segregate them into two categories: (i) military-related industries and investments in areas of proximity to military facilities regardless of the element of control; and (ii) critical/important non-­military sectors where foreign investors may exercise "actual control". The sectors in the second category include agricultural products, energy and resources, equipment manufacturing, infrastructure, transportation services, IT and Internet/online products and services, financial services, and critical technologies.


There are still a number of issues to be clarified under the SR measures, including without limitation (i) how to define "critical/important" in the above-mentioned sectors, and (ii) the distance requirements for "proximity" to military facilities, leaving a wide discretion to the regulators in interpreting the SR Measures. Therefore, it is advisable for the interested parties who are currently investing or proposing to invest in China to seek legal advice or consult the regulators at an early stage to evaluate whether their proposed investment in China may be subject to the national security review.




Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice.

 

Rajah & Tann Singapore LLP
Shanghai Representative Office

Unit 1905-1906, Shui On Plaza,
333 Huai Hai Middle Road,
Shanghai 200021 PRC
http://cn.rajahtann.com


Contacts:

Chia Kim Huat
Partner
D +65 62320464
kim.huat.chia@rajahtann.com

Linda Qiao
Senior International Counsel
D +86 21 6120 8818
F +86 21 6120 8820
linda.qiao@rajahtann.com

Chia Lee Fong
Chief Representative
D +86 21 6120 8818
F +86 21 6120 8820
lee.fong.chia@rajahtann.com

Rajah & Tann Asia is a network of legal practices based in Asia.

Member firms are independently constituted and regulated in accordance with relevant local legal requirements. Services provided by a member firm are governed by the terms of engagement between the member firm and the client.

This update is solely intended to provide general information and does not provide any advice or create any relationship, whether legally binding or otherwise. Rajah & Tann Asia and its member firms do not accept, and fully disclaim, responsibility for any loss or damage which may result from accessing or relying on this update.