Previously, the establishment and changes of FIEs in China were subject to a prior approval of the competent Commission of Commerce (“COFCOM”). Since 1 October 2016, foreign investment projects not falling under the so-called foreign investment negative list (“Negative List”) have been changed to the COFCOM filing regime.
On 30 July 2017, the Ministry of Commerce (“MOFCOM”) issued the Interim Measures on Filing Administration of Establishment and Changes of Foreign-Invested Enterprises (2017 Revision) which came into force as of 30 July 2017 (“Revised Measures”) and the Announcement on Relevant Matters concerning the Filing Administration of Establishment and Changes of Foreign-Invested Enterprises (“Announcement 2017/37”). The Revised Measures introduce several changes to the Interim Measures on Filing Administration of Establishment and Changes of Foreign-Invested Enterprises promulgated by MOFCOM on 8 October 2016 (“Old Measures”).
Highlights of the Revised Measures and Announcement 2017/37
Filing Administration for M&A of Domestic Non-FIEs by Foreign Investors
It is stipulated in the Revised Measures that the transformation of a non-FIE into a FIE through M&A, merger by absorption, foreign investor’s strategic investment into non-FIE listed company, etc. would no longer be subject to COFCOM approval, but instead would only need to undergo the simplified filing procedures with COFCOM, in case the business of the target enterprise does not fall under the Negative List.
This represents a significant breakthrough since M&A of domestic enterprises by foreign investors, different from other FIE establishments, were explicitly excluded from the filing administration and subject to COFCOM approval.
Announcement 2017/37 makes it clear that the Special Administrative Measures (Negative List) for Foreign Investment Access to Pilot Free Trade Zones (2017 Edition) shall apply in pilot free trade zones (i.e. Shanghai, Guangdong, Tianjin, Fujian, Liaoning, Zhejiang, Henan, Hubei, Chongqing, Sichuan and Shaanxi), while outside the pilot free trade zones it shall be implemented in accordance with the Special Administrative Measures for Foreign Investment Access (Negative List for Foreign Investment Access) under the Foreign Investment Industries Guidance Catalogue (2017 Revision) (please refer to our Newsletter at: Update – From July 28, 2017: Opening the Market? China’s 2017 Negative List for Foreign Investment).
New Matters Subject to Change Filing
Pursuant to the Revised Measures as well as the FIE Change Filing Application Form, COFCOM filing is now also required for the following scenarios:
- Change of basic information of establishment of FIE through M&A, including consideration, payment method, and appraised value of the target shares/assets;
- Where a foreign-invested listed company introduces new strategic foreign investor(s);
- Change of filing information of foreign investor’s strategic investment into non-FIE listed company, including consideration and payment method.
New Documents for FIE Establishment or Change Filing
Comparing with the Old Measures, the Revised Measures provide for some additional documents to be submitted:
- The shareholding structure chart of the ultimate actual controller of the FIE;
- In case a foreign investor uses shares of an overseas company as a means of payment, the Enterprise Overseas Investment Certificate of the domestic enterprise which obtains the shares of the overseas company is required.
Conclusion and Outlook
The Revised Measures remove the COFCOM approval requirement for the overwhelming majority of foreign investors’ China M&A projects. This will simplify and facilitate foreign investors’ M&A of domestic Chinese enterprises.
To duly implement the Revised Measures, it is anticipated that relevant Chinese government authorities may further modify a number of regulations and practices.