Jurisdictional thresholds

What jurisdictional thresholds trigger a review or application of the law? Is filing mandatory?

There is no special threshold for foreign investment review in China. As previously provided, MOFCOM aims to fully implement the management system of PENT with a negative list, which means the foreign investment that falls within the negative list but is not prohibited will go through the approval procedure, while the foreign investment outside of the negative list only need to go through the filing procedures, which significantly reduces the burden of the investor. The filing for establishment to MOFCOM could be conducted online simultaneously with the same documents while applying for the business licence, the filing for change to MOFCOM should be conducted online within 30 days of the change. The filing is compulsory. As for national security and antitrust reviews, the thresholds are provided respectively in questions 6 and 2.

National interest clearance

What is the procedure for obtaining national interest clearance of transactions and other investments? Are there any filing fees?

In general, the authorities will consider if the transaction or investment conforms to foreign investment access and industry policies, and the impact on national security will be evaluated if it meets the threshold of the national security review. The investor can submit application documents to the local bureau of commerce, and the internal foreign investment division will be responsible. If the application is in line with the foreign investment policies, the division will draft the approval letter and submit it to the head of the bureau of commerce for his or her final review, which will ultimately decide whether to issue the official approval letter and certificate of approval.

As stated above, the fundamental legal framework of the national security review is set out in the Security Review Notice and its following regulation: the Provisions of the Ministry of Commerce on Implementation of Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (MOFCOM’s Order [2011] No. 53, effectuated on 1 September of the same year).

The scope of the national security review is provided in question 6. Should the transaction need to be scrutinised, the investor shall apply for approval. In such circumstances, MOFCOM should inform the investor within 15 days, and subsequently submit to the inter-­ministerial joint committee within five days. Other authorities, national industry associations, competitors and the undertakings upstream or downstream all have the standing to advise MOFCOM to initiate the review. Once informed, MOFCOM should confirm and submit the transaction to the inter-ministerial joint committee within five days. The reviewing date officially starts when the filing materials are deemed to be complete. From this time, the investors are forbidden from closing the deal for another 15 days. Application is free, although it does require certain materials, which can be found in article 5 of the provision in the above paragraph.

Notwithstanding the national security review, MOFCOM’s merger and acquisition review is fairly comprehensive. For example, article 1 of the M&A Provision, which is also mentioned in question 2, candidly includes national and economic security as the factors of the review. NDRC’s Project Approval also takes national security into account, pursuant to article 16(4) of the Administrative Measures on Approval and Filing for Foreign Investment Projects (2014).

The reviewing process is mandatory, though free of charge. There is a standard filing form for investment that doesn’t fall into the negative list. The investor can visit MOFCOM’s official website and enter the filing system, which, with the required information, can be submitted online to the local bureau of commerce. That information includes the foreign investor, the amount of foreign investment, business scope, ultimate controller of foreign investment company if applied, future investment plan and number of employees of the company. Reviewing the information should provide a clear picture of the application.

Which party is responsible for securing approval?

The notifying party is usually the foreign or Chinese investor establishing a foreign-invested enterprise; for other applications it would be the foreign invested enterprise, but details may differ according to the industry and its respective regulation.

Review process

How long does the review process take? What factors determine the timelines for clearance? Are there any exemptions, or any expedited or ‘fast-track’ options?

For foreign investment qualified for filing management, the review process takes three days. For other investments still needing approval, the period changes according to the type of the investment, pursuant to the respective regulations: Sino-foreign equity joint ventures, up to 90 days; Sino-foreign cooperative enterprises, up to 45 days; and wholly foreign-owned enterprises, up to 90 days.

In practice, local reviewing authorities have generally shortened their review time to one week. Mergers and acquisitions by foreign investors usually take longer to review than other foreign investments. Factors affecting the timeline include the number of approvals involved, the sector and type (greenfield or M&A) of the investment, and the profile of the transaction. Although there is no exemption, the government usually respects the investor’s request to hasten the review if there is any special circumstance, such as the pressure to close on time.

Must the review be completed before the parties can close the transaction? What are the penalties or other consequences if the parties implement the transaction before clearance is obtained?

Previously, MOFCOM’s foreign investment approval was a prerequisite for other registrations such as industry and commerce registration and foreign exchange registration, therefore, investors could not close the deal before the review was completed. This remains the case; however, the filing-management application process is now quite different. For instance, article 1(3) of the Notice of the State Administration for Industry and Commerce on Registration Work Following Filing Administration for Foreign Investment Enterprises (State Administration for Industry and Commerce Order [2016] No. 189, released on 30 September of the same year) states that ‘the filing certificate issued by the Commerce authorities is not a prerequisite for industry and commerce registration.’

Therefore, MOFCOM has stressed the importance of interim and ex-post supervision on different occasions, for example, the Notice of MOFCOM on the Work of Supervision and Inspection of the Filing of the Establishment and Change of Foreign Invested Enterprises (MOFCOM [2016] No. 954, released on 13 December of the same year). The legal consequence of violating the Measure is that the foreign investment company or its investor will be fined up to 30,000 yuan and possibly have other relevant legal liabilities if it breaks other laws and regulations.

There is no doubt that, when the investment ought to be under national security review, merger and acquisition review, or antitrust review, the legal ramifications are the same as ever: the parties cannot close the transaction. The consequences of doing otherwise include a fine, compulsory termination of the transaction, transferring of assets or equities, and other necessary measures.

Involvement of authorities

Can formal or informal guidance from the authorities be obtained prior to a filing being made? Do the authorities expect pre-filing dialogue or meetings?

Most authorities provide guidelines or illustrations of the process as reference points for investors, who are recommended to study them carefully. Even though the relevant regulations remain unspecific, the authorities normally accept a request for pre-filing meeting. Still, there are provisions in this regard, including article 4 of the Provisions of the Ministry of Commerce regarding the national security review provided in question 9. Nevertheless, though in most instances it does assist the parties with a clearer picture of the review and the prevailing opinion of the authority, such meeting or consultation does not have a legal or de facto binding effect on the agency and should be treated with great care.

When are government relations, public affairs, lobbying or other specialists made use of to support the review of a transaction by the authorities? Are there any other lawful informal procedures to facilitate or expedite clearance?

There is no unified standard or regulation in this regard. Meetings or communications are mostly welcomed and potentially helpful for the review, but the results differ. Nor are the authorities always willing to meet the representatives from the parties. Such practice is not yet common in China.

What post-closing or retroactive powers do the authorities have to review, challenge or unwind a transaction that was not otherwise subject to pre-merger review?

There is no specific provision in this regard under the foreign investment review regime in China. For filing management, the Measure imposes a fine on non-compliance such as refusing to file, providing misleading or false information, investment against the Catalogue, and refusing the inspection of the government. For approval-required foreign investment, similar regulations and legal liabilities (fines, forfeiture of illegal income, and revocation of a business licence) are also provided, such as article 60 of the Implementation Regulations for the Administrative Regulations of the People’s Republic of China on Registration of Enterprise Legal Persons (State Administration for Industry and Commerce Order [2017] No. 92) and other regulations for the specific approvals involved. Under the AML, SAMR may impose certain penalties and even unwind a notifiable transaction that failed to comply with the notification obligation, according to article 48 of the AML, although there has not been any precedent thus far.