Protection measures
The State Council recently promulgated a new initiative to establish a security review system on domestic M&A activities conducted by foreign parties. This new process officialises an attempt to safeguard key Chinese companies, but will add time and cost burdens to select potential overseas investors
Issue: April 2011
Keywords (click to search):
Dorsey & Whitney
M&A security review
domestic acquisition
A new rule issued by the General Office of the State Council of China on February 3 2011 will impact mergers and acquisitions (M&As) undertaken by foreign parties of Chinese targets in certain sensitive industry sectors. The new rule calls for the establishment of a security review system for the purpose of safeguarding national security. The Circular on Establishment of the Security Review System in Respect of Acquisition of Domestic Enterprises by Foreign Investors (国务院办公厅关于建立外国投资者并购境内企业安全审查制度的通知) (Circular) authorises a security review system (M&A security review system) to be implemented 30 days after promulgation.
The concept of a review for “national security” reasons can be traced back to several anti-trust regulations since 2003, including in Article 31 of the PRC Anti-monopoly Law (中华人民共和国反垄断法). The concept, however, has never been supported by any implementing rules enacted in the period. Even though the Circular has only five main articles, it undoubtedly will...
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