Promulgated on 19 December 2020, the China’s Measures for the Security Review of Foreign Investments (the “FISR Measures”) has come into force since 18 January 2021. Before the FISR Measures, the security review on foreign investment was limited to be imposed in several free trade zones in China. In the wake of the establishment of China’s National Security Law in 2015 and the effectiveness of China’s Foreign Investment Law in 2020, a comprehensive security review on foreign investment is now introduced into practice by the FISR Measures.
The FISR Office, led by both the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce, is set up under the NDRC, which would be in charge of security review foreign investments in China. The FISR Office is authorized to carry out the security review, make decisions and orders, as well as to provide consulting opinions prior to submission, etc.
Scope of Application
The scope of application consists of two dimensions, namely what is “foreign investment” and what kind of “foreign investment” shall be reviewed.
The FISR Measures defines the term “foreign investment” as investment activities directly or indirectly conducted within China by foreign investors solely or jointly with other investors, including:
In addition, the FISR Measures makes the definition general by enclosing “investments in China by foreign investors through other means” after the abovementioned circumstances. Notably, the FISR Measures is also applicable for share acquisition of Chinese enterprises by foreign investors through Stock Exchange or other qualified security trade places, though the specific measures are yet to be made.
There are two kinds of “foreign investment” listed as follows, which are compulsory to proactively submit the statements of application, investment plans, statements illustrating the possible impacts on national security, and other requested documents (“Application Documents”) to the FISR Office, otherwise, the FISR Office is entitled to request for submission.
For the second kind, the FISR Measures lists several important industries, such as agriculture, energy and resources, manufacturing, infrastructure, transportation, culture, IT and finance.
Once the FISR Office accepts the Application Documents submitted by the “party involved”, either the foreign investors or the related Chinese parties, the review process initiates.
Non-compliance under the FISR Measures is stipulated as failure to submit the Application Documents, providing fake documents or hiding information to pass the security review, or failure to comply with the conditions in a case of conditional pass. For this non-compliance, the party involved will bear the liabilities to put an end to the investments by deposing the invested equities and assets or by other means, and to restore the status prior to the investments, eliminating any impact on the national security, which will also be recorded into China’s credit information system.
The FISR Measures marks establishing a comprehensive security review on foreign investments and offers a guidance for the foreign investors with information on who is in charge, how the foreign investors initiate the process and what are the possible results of the security review. It is one step forward as a general framework, in light of which, the detailed measures can be foreseen.
BUREN has contributed the China chapter on Dispute resolution to the Lexology/Getting The Deal Through DR Guide.
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