On December 19, 2020, the Measures for the Security Review of Foreign Investments (the “Measures”) were issued jointly by the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”). The Measures went into effect on January 18, 2021. The head of the Foreign Investment Security Review Office (the “Security Review Office”) stated that the passing of the Measures is aligned with international practices for foreign investment.
The Measures contain 23 articles covering, among others: (i) the foreign investment transactions subject to it; (ii) the scope of review under it; (iii) the reporting procedures; and (iv) penalties. The Measures were enacted based on the Foreign Investment Law of the People’s Republic of China1, and China’s national security review first introduced in 2011 by the Circular of the General Office of State Council on the Establishment of Security Review for the Merger and Acquisition of Domestic Enterprises by Foreign Investors. A dedicated office, i.e., the Security Review Office, will be set up and jointly led by NDRC and MOFCOM to implement the Measures.
1. Foreign Investments Subject to the Measures
According to Article 2 of the Measures, foreign investments (the “Foreign Investment(s)”) under the Measures include greenfield investments, acquisitions of shares and/or assets in China, and other investments directly or indirectly made by foreign investors. Moreover, Article 22 stipulates that if a foreign investor acquires the shares of any Chinese enterprise through the public markets (i.e., stock exchanges) and such purchases affect or may affect national security, such secondary market transactions will also be subject to review.