International Legal Perspective | Analysis of China's Foreign Investment Security Review System
Published:
2024-11-21
The foreign investment security review system refers to a specialized mechanism and institution that conducts a comprehensive review of foreign investment activities involving "national security" to assess the risks and impacts of such investments on national security. This system aims to protect national security and interests, ensuring the legality and stability of foreign investments. This article will explore the construction, implementation, and impact of China's foreign investment security review system, helping foreign investors accurately understand the standards of foreign investment security review during their investment process in China, ensuring compliance of investment activities, and effectively managing and responding to potential uncertainties.
The foreign investment security review system refers to a specialized system for comprehensive review of foreign investment behaviors involving "national security" by dedicated institutions and mechanisms, to assess the risks and impacts of such investments on national security, thereby making decisions and conducting risk intervention and control. This system aims to protect national security and interests, ensuring the legality and stability of foreign investments. This article will explore the construction, implementation, and impact of China's foreign investment security review system, to help foreign investors accurately grasp the standards of foreign investment security review during their investment process in China, ensure compliance of investment activities, and effectively manage and respond to potential uncertainties.
1. Background and Development of the System
In the 1970s, the foreign investment security review system originated in the United States. China established a security review system for foreign investors acquiring domestic enterprises in 2011, and since 2015, has piloted foreign investment security review measures compatible with the negative list management model in free trade pilot zones. In 2019, China issued the "Foreign Investment Law" and its implementation regulations, establishing the basic framework of the legal system for foreign investment in the new era, and formally establishing a pre-entry national treatment plus negative list management system at the legal and regulatory level, while clearly stating that the state would establish a foreign investment security review system. To further refine this system, in 2020, the National Development and Reform Commission and the Ministry of Commerce issued the "Foreign Investment Security Review Measures" (hereinafter referred to as the "Review Measures").
2. Main Content and Declaration Process of Security Review
The "Foreign Investment Law" and the "Review Measures" together form the foundation of China's foreign investment security review system, with the main content including the following aspects:
(1) Scope of Application of Security Review
Regarding "acquisition of control", Article 4 of the "Review Measures" stipulates the following: (1) Foreign investors hold more than 50% of the shares of the target company; (2) Foreign investors hold less than 50% of the shares, but their voting rights can significantly influence the resolutions of the board of directors, shareholders' meetings, or general meetings of shareholders; (3) Other circumstances that allow foreign investors to have a significant impact on the business decisions, personnel, finance, technology, etc. of the enterprise.
(2) Management Authorities of Security Review
According to Article 3 of the "Review Measures", the state establishes a foreign investment security review working mechanism, responsible for organizing, coordinating, and guiding the work of foreign investment security review. The office of the working mechanism is located in the National Development and Reform Commission, led by the National Development and Reform Commission and the Ministry of Commerce, which undertakes the daily work of foreign investment security review.
(3) Initiation Methods of Security Review
According to Articles 4 and 15 of the "Review Measures", the initiation methods of security review mainly include the following three: (1) Foreign investors or relevant domestic parties voluntarily declare; (2) The security review office requests the parties to declare; and (3) Relevant authorities, enterprises, social organizations, and the public can propose suggestions for security review to the working mechanism office if they believe that foreign investment affects or may affect national security.
(4) Process of Security Review
3. Summary
In the context of a complex global situation, China's degree of openness continues to increase, and its ability to attract foreign investment is growing stronger, while the intensity of foreign investment security review also maintains a positive trend. Both domestic and foreign enterprises should pay attention to the impact of security review on investment transactions. The "Review Measures" cover a wide range, and law enforcement agencies have significant discretion; whether specific industries are included in the review requires case-by-case assessment. To reduce uncertainty, parties to a transaction can entrust lawyers to communicate with security review agencies under specific circumstances, and for transactions that may involve national security, restrictive conditions can be set to mitigate impacts and increase the likelihood of approval.
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