China: Inbound MA Projects Become Easier

Last Updated: 22 December 2017
Article by Ulrike Glueck and Michael Munzinger

According to the Provisional Measures on Management of the Establishment and Changes of Foreign Invested Enterprises ("Provisional Measures 2016") which entered into effect on 8 October 2016, the approval and examination procedures regarding foreign-invested enterprises ("FIE") have generally been replaced by much simpler record-filing procedures, if such FIEs are not listed in a so-called Negative List. This means that since 8 October 2016, the establishment of as well as the implementation of most corporate changes with regard to FIEs, such as but not limited to changes of registered capital, legal address, company name and business scope as well as changes of the shareholding structure and liquidation, are not subject to examination and approval by the competent examination and approval authority, i.e. the competent Bureau of Commerce ("BoC"), anymore but to mere record-filing procedures, if such FIEs are not listed in the so-called Negative List. According to Circular (2016) No. 22, from 8 October 2016 on, for the Negative List, reference had to be made to the Guideline Catalogue on Industries for Foreign Investment.

However, the above mentioned Circular (2016) No. 22 expressly stipulated that the shift from ex-ante approval to (ex-post) record-filing did not apply to the acquisition of shares or assets of a domestic company by foreign investors, i.e. so-called mergers and acquisitions according to the PRC Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors ("M&A Provisions"). Accordingly, M&A transactions according to the M&A Provisions had not been covered by the first round of regulations which shifted FIEs from ex-ante approval to record-filing. Until very recently, they remained to be subject to examination and approval procedures.

This has now changed. On 30 July 2017, the PRC Ministry of Commerce further revised the Provisional Measures 2016 and promulgated the Provisional Measures on Management of the Establishment and Changes of Foreign Invested Enterprises, 2017 Revision ("Provisional Measures 2017") which entered into effect on the same day together with the Announcement on Relevant Matters concerning the Filing Administration of Establishment and Changes of Foreign-Invested Enterprises ("Announcement 2017/37"). The key changes are as follows:

1. According to the Provisional Measures 2017 and Announcement 2017/37, now also the transformation of a purely domestic company into a FIE by way of a M&A transaction according to the M&A Provisions is only subject to the simplified record-filing procedures, if the FIE into which such domestic company is transformed does not fall into the Negative List of the new Guideline Catalogue on Industries for Foreign Investment (2017 Revision) ("Guideline Catalogue 2017"). It is further stipulated that if the basic information regarding a M&A transaction and the related transformation of the target into a FIE, such as the payment method, the purchase price and the assessed value of the equity interests, change, the representative or agent of the FIE shall fill in and submit an online application regarding such changes to the competent BoC within 30 days from occurrence of such change. The above represents a remarkable change. Since 30 July 2017, now also M&A projects are subject to mere record filing, if the target to be transformed to a FIE does not fall into the Negative List.

However, the new Guideline Catalogue 2017 which entered into effect on 28 July 2017, expressly stipulates that so-called roundtrip investments, i.e. an acquisition of a domestic entity by a domestic entity or individuals using a company legally established overseas or controlled by domestic shareholders as an investment vehicle, shall be handled pursuant to the prevailing provisions. I.e. roundtrip investments are currently still subject to examination and approval procedures.

2. The Provisional Measures 2017 and the Announcement 2017/37 also clarify that foreign investors, which make strategic investments to qualified non-foreign-invested listed companies, or to qualified foreign-invested listed companies (i.e. those which do not fall into the Negative List of the Guideline Catalogue 2017), within the scope prescribed in the Provisional Measures 2017, also only have to handle record-filing procedures. According to the Administrative Measures on Strategic Investment in Listed Companies by Foreign Investors, the term "strategic investment" refers to the acquisition of "A" shares in listed companies by foreign investors through medium- and long-term strategic merger and acquisition investments of a certain scale.

The filing shall be made 30 days before or after registration with the securities registration and clearing organization. Upon completion of the filing, where there is a change regarding the filing information regarding strategic investments, such changes shall be submitted for filing within 5 days from performance of the information disclosure obligations by the information disclosure obligor(s) as required by the PRC Securities Law and the relevant provisions.

3. While the procedures for M&A transactions and for strategic investments in listed companies have generally been simplified, there have also been some additions to the documents to be submitted to the competent PRC authorities:

- A shareholding structure chart indicating the ultimate actual controlling party of the FIE, i.e. the domestic target after its transformation, has to be submitted, if a FIE or its investors apply for record-filing of the transformation or corporate changes of such FIE. When there is no change of the ultimate actual controlling party of the FIE, such shareholding structure chart is not required;

- If a foreign investor uses equity interests of an overseas company for payment, i.e. in case of a share swap, the Enterprise Overseas Investment Certificate of the domestic enterprise which obtains the equity interests in the overseas company shall be provided.

4. The "Application Form for Filing of the Establishment of Foreign-invested Enterprises" and the "Application Form for Filing of Changes of Foreign-invested Enterprises" have been replaced by updated standard forms which are attached to Announcement 2017/37.

Conclusion

In summary, now, examination and approval is basically only required for M&A transactions and for strategic investments in listed companies which fall into the scope of the Negative List and for roundtrip investments.

The Provisional Measures 2017 and the Announcement 2017/37 constitute a major breakthrough for M&A projects and for strategic investments in listed companies and considerably simplify and shorten the timeframe for these projects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions