CHINA Law and Practice Contributed by: Jeff Liu, Jeanette Wang, Yulong Lai and Yun Bi, Shihui Partners
5.2 Scope of Transactions and Investors According to the FIL and the NSR Measures, foreign investments falling into the following categories shall be subject to NSR: • investments in military industry, fields supporting military industry and other fields relating to the security of state defence, and investments in areas surrounding military facilities and military industrial facilities (“Military Related Investments”); and • where a foreign investor acquires actual control over critical agricultural products, critical energy and resources, critical equipment manufacturing, critical infrastructure, critical transport services, critical cultural products and services, critical information technology and internet products and services, critical financial services, key technolo - gies and other critical industries relating to national security. 5.3 Triggers and Thresholds The foreign investments subject to FDI/national secu - rity filing consist of both direct and indirect invest - ments within the territory of China, including the fol - lowing circumstances: • where foreign investors invest, solely or jointly with other investors, in new projects or establish enter - prises in China; • where foreign investors acquire equity or assets of domestic enterprises by way of merger or acquisi - tion; or • where foreign investors make investments in China in any other form. For any foreign investment falling under the category of Military Related Investments noted in 5.2 Scope of Transactions and Investors , it shall be subject to FDI/national security review, irrespective of the level of equity, voting rights or other control rights acquired. For the second type of foreign investment noted in 5.2 Scope of Transactions and Investors , a control test may be applied, which includes the following cir - cumstances: • where the foreign investor holds more than 50% of the equity of an enterprise;
• where the foreign investor holds less than 50% of the equity of an enterprise, but the voting rights held by it can have a significant impact on the resolutions of the board of directors, the board of shareholders or the general meeting of sharehold - ers; and • other circumstances where the foreign investor may have significant impact on the enterprise’s business decision-making, human resources, finance, technology, etc. In practice, the regulator has relatively broad discre - tion in determining the level of “actual control” and identifying industries that may fall into the scope of “other critical industries relating to national security”. 5.4 Mandatory v Voluntary Filings Foreign investments falling within the scopes noted in 5.2 Scope of Transactions and Investors must be filed before closing. However, as noted in 5.3 Triggers and Thresholds , the regulator has relatively broad dis - cretion in determining the level of “actual control” and identifying industries that may fall within the scope of “other critical industries relating to national security”. 5.5 Procedure and Timelines The review of the NSR filing involves the following phases: • Pre-acceptance review: The NSR Office shall determine whether NSR is required within 15 work - ing days from its satisfaction regarding receipt of complete notification materials. • General review phase: If the NSR Office deter - mines that NSR is required, it shall conduct a general review and determine in 30 working days whether to approve the FDI or extend to the special review phase. • Special review phase: If the NSR Office consid - ers that the notified transaction may have national security concerns during the general review phase, it will launch a special review for 60 working days. The special review period may be extended if special circumstances apply. However, the NSR Measures do not specify the circumstances to trigger such an extension or the time limit for the extended review period.
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