Jurisdictional thresholds

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

Jurisdictional thresholds that trigger the application of the law are discussed in question 3. All foreign-invested enterprises shall be registered with the competent market regulation authority. For certain sectors, the approval from certain authorities will be necessary.

The national security review will be triggered if any foreign M&A is in certain sectors (such as military related industry, agriculture, energy and resources, infrastructure, transport, technology, assembly manufacturing, etc) and might acquire the actual controlling right after foreign M&A.

National interest clearance

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

The foreign investor shall apply for the M&A national security review to the NDRC. The filing is mandatory and free.

For M&A national security reviews, documents that need to be submitted are as follows:

  • a written application for M&A national security review and a description of the transaction signed by the legal representative or the authorised representative of the applicant;
  • a foreign investor’s identity certificate or certificate of registration and credit certification documents, which are notarised or authenticated in accordance with law;
  • the legal representative’s identity certificate or the power of attorney issued by the foreign investor to the authorised representative and the authorised representative’s identity certificate;
  • a description of a foreign investor and its affiliated enterprises (including its actual controller and persons acting in concert), and its relationship with the government of the relevant country;
  • a description of the domestic enterprise to be merged or acquired, the by-laws, business licence (photocopy) and audited financial statements of the previous fiscal year of it, the organisational charts before and after its M&A, and a description and the business licences (photocopy) of the enterprises in which it has invested;
  • the contract on and by-laws of the partnership agreement on the foreign-funded enterprise to be established after the M&A and a list of the members of the board of directors to be appointed by the shareholders and the general manager to be employed or partners and other senior managerial personnel;
  • in the case of any equity-based M&A transaction, the equity transfer agreement or the agreement on the foreign investor’s subscription to additional capital of the domestic enterprise, the shareholders’ resolutions of the merged or acquired domestic enterprise, resolutions of the shareholders’ meeting and the relevant asset evaluation reports;
  • in the case of any asset-based M&A transaction, a resolution on the consent of the domestic enterprise’s governing authority or holder of title to assets to the sale of the assets, asset sales agreement (including a list of the assets to be purchased and their condition), information on all parties to the agreement and the relevant asset evaluation reports;
  • an explanation of the impact of the voting rights to be enjoyed by a foreign investor after the M&A on the execution of the resolutions of shareholders’ meeting or shareholders’ assembly or board of directors and the partnership affairs, an explanation of other circumstances resulting in the transfer of the actual controlling powers in such aspects of the domestic enterprise as operational decision-making, finance, personnel and technology to the foreign investor or its domestic or overseas affiliated enterprise, and agreements or documents related to the aforesaid circumstances; and
  • other documents required by the Ministry of Commerce.

Which party is responsible for securing approval?

The foreign investor shall file the application. If two or more foreign investors are involved, they may apply jointly or designate one foreign investor to apply for the M&A review.

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?

There are different stages of an M&A national security review. Once a complete M&A national security review application is received, the NDRC will make a preliminary judgment. If the NDRC decides that a review is necessary, it will notify the applicant in writing within 15 working days and submit the application to the joint ministerial meeting for a general review within five working days after notifying the applicant.

After receiving the application from the NDRC, the joint ministerial meeting has 30 working days to conduct a general review on whether the transaction affects national security or not. If it is determined that the M&A does not affect national security, then the transaction will be allowed to proceed. However, if the joint meeting finds otherwise, it will start the special review procedure that will last up to 60 working days.

There is not any exemptions or ‘fast-track’ options.

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?

The review must be completed prior to the close of transaction. If the M&A national security review result is positive but if the parties have implemented the transaction, the authority will require the parties to transfer relevant equities or assets to eliminate impacts that the transaction has made on national security.

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?

Informal guidelines could be obtained from authorities before making a filing. Prior to making a formal M&A national security review application, applicants may request consultations with the NDRC regarding procedural issues. Such advance consultations are optional and not binding.

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 such practice or specialist in China. Pre-filing communications are possible as discussed in question 13. However, there is not any other lawful informal procedures to facilitate or expedite clearance.

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?

Relevant authorities have powers to eliminate impacts that the M&A has made on national security.