M & A Law Prof Blog

Editor: Brian JM Quinn
Boston College Law School

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Saturday, February 12, 2011

Chinese "CFIUS process"

Reuters reports on China's announcement that China will begin subjecting inbound M&A activity to national security reviews - its own version of the US CFIUS process.  Although the US security review system entails a voluntary filing, I suspect the Chinese version that they are currently envisioning will be slightly more intrusive.  Here's the official goverrnmenent announcement (translated by the Google machine):

In order to guide foreign investors and orderly development of the domestic enterprise, safeguard national security, by the State Council, is to establish a foreign investor acquires a domestic enterprise security review (hereinafter referred to as M & A security review) system in the matter are as follows:


    First, the scope of M & Security Review
    (A) safety review of the range of M & A: Foreign investors, supporting the takeover of a domestic defense industry and military enterprises, key, sensitive military installations around the business, and relationships with other units of national security; foreign investor acquires a domestic national security of the important agricultural products, it is important energy and resources, critical infrastructure, an important transportation services, key technologies and major equipment manufacturing and other enterprises, and the actual control may be achieved by foreign investors.
    (B) a foreign investor acquires a domestic enterprise, is the following:
    1  foreign investor purchases shares of enterprises with foreign investment or subscribe for capital increase domestic non-foreign-invested enterprises, domestic enterprises to make the change into a foreign-invested enterprises.
    2  foreign investment in a foreign investor purchases the equities of Chinese enterprises, or enterprises with foreign investment capital increase subscription.
    3  foreign investors to establish foreign-invested enterprises and enterprises with foreign investment agreement through the purchase of a domestic enterprise assets and operates its assets, or through the foreign-invested enterprises to purchase shares of domestic enterprises.
    4  the territory of foreign investors to buy corporate assets, and invest the assets of the foreign-invested enterprises operating assets.
    (C) to obtain effective control over foreign investors, foreign investors means a domestic enterprise through the acquisition of a controlling shareholder or actual controller. Include the following:
    1  foreign investors and its parent holding company, subsidiary after the acquisition of the total shares held by more than 50%.
    2  several foreign investors in the acquisition of shares held after the combined total of more than 50%.
    3  foreign investors in the acquisition of shares held after the total amount of less than 50%, but according to their holdings enough to enjoy the right to vote, or the shareholders meeting of shareholders, resolution of the board have a significant impact.
    4  other decision-making led to a domestic enterprise, finance, personnel, technology transfer of effective control over the situation to foreign investors.


    Second, the contents of M & Security Review
    (A) of the M & A transaction on national security, including the defense needs of the domestic production capacity, the domestic services capacity and the impact on equipment and facilities.
    (B) of the M & A transactions on the stable operation of the national economy.
    (C) of the M & A transactions on the impact of basic social order of life.
    (D) M & A transactions involving national security, the impact of key technology R & D capabilities.


    Third, M & A security review mechanism
    (A) the establishment of a foreign investor acquires a domestic enterprise security review of the Inter-Ministerial Joint Conference (hereinafter referred to as joint) system, the specific commitment to the safety review of mergers and acquisitions.
    (B) under the leadership of the joint meeting of the State Council, the Development and Reform Commission, Ministry of Commerce take the lead, according to foreign capital industries and sectors involved, together with relevant departments to carry out M & Security Review.
    (C) of the joint meeting of the main responsibilities are: analysis of a foreign investor acquires a domestic enterprise to national security; research, coordination of the foreign investor acquires a domestic enterprise security review of the major issues; on the need for safety review of the foreign investor business transactions within the safety review and decision.


    Fourth, M & A security review process
    (A) a foreign investor acquires a domestic enterprise, shall be in accordance with the provisions of this notice by the investor to the Ministry of Commerce to apply. That fall within the scope of the safety review of mergers and acquisitions, the Ministry of Commerce should be brought to within 5 working days to review the joint meeting.
    (B) a foreign investor acquires a domestic enterprise, relevant State Council departments, national trade associations, industry enterprises and downstream enterprises that require acquisition of security review, conducted by the Ministry of Commerce security review of the proposed merger. Joint acquisitions deemed necessary by the safety review, may decide to conduct the review.
    (C) of the joint review of the Ministry of Commerce deals brought to safety, the first general review of the general review of the failed, to conduct a special review. The parties shall deal with the joint safety review, to provide security review required materials, information, and accepted the inquiry.
    Review of written comments of general way. Ministry of Commerce received the Joint Security Review deals brought to the application, within 5 working days, the departments concerned to seek a written opinion. After receiving the additional request in writing the relevant departments, should be within 20 working days to submit written observations. Such as the departments concerned that the deal does not affect national security, are no longer conduct a special review by the joint meeting of all the written comments received within 5 working days to review comments, and written notice to the Ministry of Commerce.
    M & A transactions, if any departments that may impact on national security, joint written comments should be received within 5 working days after the start the special review process. Start the special review procedures, joint organization of the safety assessment of mergers and acquisitions, combined with assessment of the review of M & A transactions, basically the same comments, review comments made by the joint meeting; there are significant differences, by the joint meeting of the State Council for decision. Joint meeting since the launch of special review procedures within 60 working days to complete special reviews, or to the State Council decision. Review comments in writing by the joint meeting of the Ministry of Commerce.
    (D) the safety review process in the acquisition, the applicant may apply to the Ministry of Commerce program to modify or withdraw merger transaction.
    (E) acquisition of security review was made by the applicant written notice of the Ministry of Commerce.
    (Vi) acts of a foreign investor acquires a domestic enterprise to national security have caused or may cause significant impact on the joint meeting with the relevant departments should be required to terminate the Ministry of Commerce of the transaction parties, or transfer the relevant shares, assets or other effective measures to eliminate the merger and acquisition on national security.

    V. Other provisions
    (A) the relevant departments and units to establish the overall concept, enhance a sense of responsibility and keeping state secrets and commercial secrets, improve efficiency, expanding opening up and foreign investment to improve standards at the same time, promote the healthy development of foreign capital to safeguard national security.
    (B) the acquisition of domestic enterprises involving foreign investors new investment in fixed assets, fixed assets investment by state regulations for project approval.
    (C) acquisition of domestic enterprises involving foreign investors to change the state-owned property, the management of state assets by state regulations.
    (D) a foreign investor acquires a domestic financial institutions, security review separately.
    (E) Hong Kong SAR, Macao Special Administrative Region, Taiwan investors in mergers and acquisitions, with reference to the provisions of this notice.
    (Vi) M&A safety review system since the date of the notice issued 30 days after implementation.

Rules for this review process are expected to be released in March.

-bjmq

http://lawprofessors.typepad.com/mergers/2011/02/chinese-cfius-process.html

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Comments

As if their previous approval requirements weren't already invasive enough...

Posted by: Anonymous | Feb 14, 2011 1:26:36 AM

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