It's been slightly over a month since the enactment of a
national security review (NSR) process for foreign acquisitions of
domestic businesses. Thus far, it is not clear how many (if any at
all) foreign-local deals have undergone the NSR process, Pursuant
to the rules and regulations1 which govern the NSR
process, there is no obligation on the part of the Chinese
government to publish any determinations (whether deals are
approved or not) in relation to deals which undergo the NSR
We are aware, however, that local administrative agencies
(including the local branches of the Ministry of Commerce) are now
not only reviewing foreign-domestic deals for the more established
regulatory approval processes (e.g. foreign investment approval
processes) but are also keeping an eye out for foreign-domestic
deals which might fall under the purview of the NSR system. In
fact, recently, an official from a local branch of the Ministry of
Commerce told our clients (orally) that they may wish to consider
putting in an application to the Ministry of Commerce (central
division) to seek NSR clearance for their proposed deal.
Article 2 of the regulations governing the NSR process (i.e. the
Interim Rules for Implementation) states that local commerce
administrative agencies are requested to cease their review of
foreign-domestic deals for other regulatory approvals, if they are
of the view that these deals warrant NSR clearance. In such cases,
local commerce administrative agencies are obliged to report
relevant information to the Ministry of Commerce (central
division); as well as request (in writing) to the foreign investor
to apply to the Ministry of Commerce (central division) for NSR
It looks like local commerce administrative agencies are going
keep an eye out for deals which might fall under the purview of the
NSR process. As only foreign-domestic deals involving national
economic security or national defense security issues may be caught
pursuant to the NSR process – much would turn on the
Chinese government's interpretation on what constitutes
"national economic security" and what constitutes
"national defense security". We assume that these terms
would be interpreted using relatively high thresholds –
failing which the NSR process would, perhaps, be at risk of
"over-capturing" foreign-domestic deals. This would cause
major hold ups in terms of the time it would take for all
regulatory processes (including NSR clearance) to be completed in
China, for foreign-domestic deals.
1. Namely the Notice by the General Office of the
State Council in relation to the institution of the National
Security Review system for mergers and acquisitions of domestic
enterprises by Foreign Investors 2011 No. 6 (which came into
force on 5 March 2011); and the Interim Rules for
Implementation which came into force on 4 March
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