CHINA Law and Practice Contributed by: Jeff Liu, Jeanette Wang, Yulong Lai and Yun Bi, Shihui Partners
6.4 Interaction With Merger Control and FDI/ National Security Reviews M&A transactions involving foreign investment in Chi - na may trigger multiple regulatory requirements, such as NSR by the NDRC and the MOFCOM, merger con - trol by the SAMR and industry-specific approvals by industry regulators (eg, the NFRA, the MIIT, the NPPA). These processes generally are operated separately by different regulatory authorities and differ in, eg, trig - gering conditions, statutory filing deadlines, requested materials and review timeframes. These variations create practical challenges for trans - action parties, eg, regulatory due diligence and plan - ning on types of regulatory approvals needed, timeline planning and foreign investor restrictions (if an inter - national buyer). However, there is a certain degree of co-ordination between different regulatory authorities through infor - mation sharing and inter-departmental collaboration. Interaction Between Sector-Specific Approvals and Merger Control Sector-specific approvals focus more often on the investor itself, for instance, evaluating the inves - tor’s qualifications, compliance of funding sources, and business operation capabilities. Merger control assesses the impact of the transaction on competition in the Chinese market. Despite the differences in focus, sector-specific approvals and merger control reviews complement each other: • The SAMR during its merger control review may consult relevant sectoral regulators regarding, eg, industry competition conditions and market access policies. • Sectoral regulators in their approval process may consider, eg, whether a merger or change of con - trol affects fair market competition or whether the investor has previously engaged in unfair competi - tion practices.
Interaction Between Sector-Specific Approvals and the NSR The NSR is more politically sensitive, focusing on assessing the impact of the transaction on China’s national security. Where foreign investment involves acquiring actual control of a Chinese enterprise in a heavily regulated sector, such as those listed in the Negative List, transaction parties need to consider whether the NSR approval is needed to complete the transaction. Nevertheless, co-ordination does exist between the NSR and sector-specific approvals: • The NSR Office may consult industry regulators (eg, the CSRC, the PBOC, the MIIT) for specific transactions. • Sector-specific approvals may examine foreign investor qualifications, investment proposals and foreign shareholding caps, which are also factors relevant to the NSR. 6.5 Practical Issues and Common Pitfalls See 6.4 Interaction With Merger Control and FDI/ National Security Reviews . 7. Deal Structuring, Risk Allocation and Conduct Pending Closing 7.1 Conditions Precedent and Long-Stop Dates In PRC M&A deals, conditions precedent typically include the following regulatory approvals and litiga - (a) Merger control: Anti-monopoly approval from the SAMR is mandatory if the prescribed filing thresholds are met. (b) FDI approvals: Clearance from the MOFCOM or from the relevant industry regulators for investments in restricted sectors (eg, finance, telecommunications). (c) The NSR: Mandatory for foreign investments in sectors deemed sensitive to national security (eg, defence, critical infrastructure, key tech - nologies). tion-related outcomes: • Regulatory approvals:
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