Measures for the National Security Review of Foreign Investment Pilot Free Trade Zones from the State Council General Office

Index number：000014349/2015-00050

Subject category:Commercial trade, customs, tourism, foreign trade and economic cooperation

Issuing Organ:General Office of the State Council

Document date:4/8/2015

Title:State Council General Office Notice on the Issuance of the Measures for the National Security Review of Foreign Investment in Pilot Free Trade Zones

Release Number:SCGO Release (2015) No.24

Release date:4/20/2015

Source:http://www.gov.cn/zhengce/content/2015-04/20/content_9629.htm

State Council General Office Notice on the Issuance of the Measures for the National Security Review of Foreign Investment in Pilot Free Trade Zones

People’s governments of provinces, autonomous regions, and cities directly under the jurisdiction of central government, and all State Council ministries and commissions and directly managed agencies:
The State Council has Consented to these "Measures for the National Security Review of Foreign Investment in Pilot Free Trade Zones" and they are hereby issued to you; please earnestly implement them.

General Office of the State Council
4/8/2015
(for public release)

I. Scope of Review

II. Content of Review

III. Mechanisms and Procedures for Security Review

IV. Other Provisions

Measures for National Security Review of Foreign Investment in Pilot Free Trade Zones

These Measures are formulated so as to do the work of opening up in China's pilot free trade zones (Shanghai, Guangdong, Tianjin and Fujian) (hereinafter "pilot free trade zones", to pilot implementation of measures for national security review of foreign investment that correspond to the negative list management model (hereinafter "national security review"), to steer the orderly development of foreign investment, and preserve national security.

I. Scope of Review

The general principle is to conduct security review of foreign investment that affects or might affect national security or national security capabilities; that involves sensitive investment subjects, sensitive targets of acquisition, sensitive industries, sensitive technologies, or sensitive regions.
(1) The scope of security review: foreign investors within the pilot free trade zones investing in military and military support efforts and other fields involving national defense, as well as areas surrounding key and sensitive military facilities; foreign investors within the pilot free trade zones investing in, and acquiring actual control of the enterprise invested in, in areas involving national security such as important agricultural products, important energy sources and resources, important basic facilities, important transport services, important culture, important information technology products and service, key technologies, and major equipment manufacturing.
(2) Foreign investment in pilot free trade zones includes the following situations:

1. Foreign investors investing in new projects or setting up enterprises, either independently or jointly with other investors,
2. Foreign investors acquiring equity or assets in already established entrerprises through mergers and acquisitions.
3. Foreign investors made through means such as by means such as control agreements, trust, investment, overseas transactions, leasing, subscription of convertible bonds and other investments.

(3) Foreign investors acquiring actual control rights for enterprises, included the following:

1. foreign investors and their associated investors hold 50% or more of the total shares..
2. A number of foreign investors hold 50% of the total shares in an enterprise.
3. Foreign investors and their associated investors, or a number of foreign investors, hold less than 50% of the total shares in an enterprises, but their voting rights are sufficient to have a major impact on shareholders committees, general stock holders committees, or the board of directors.
4. Other situations leading foreign investors to have a major impact on enterprises' business policies, personnel, finance and technology.

II. Content of Review

(1) The impact of foreign investment on national defense, including on domestic production capacity for defence needs, the domestic services capacity and related facilities.
(2) the impact of foreign investment on the country's stable economic operation.
(3) the impact of foreign investment on basic social order.
(5) the impact of foreign investment on national cultural security and public morality.
(5) the impact of foreign investment on national cyber security.
(6) The impact of foreign investment on research and development capabilities in key technologies involved with national security implications.

III. Mechanisms and Procedures for Security Review

(1) An inter-ministerial joint conference on security review foreign mergers and acquisitions of domestic enterprises (hereinafter referred to as "the joint conference") is specifically responsible for security review of foreign investment in pilot free trade zones. Under the mechanism of the Joint Conference, the National Development and Reform Commission and the Ministry of Commerce work with relevant departments to conduct security reviews based on the areas of foreign investment.
(2) Security review procedures in the pilot free trade zones are handled in accordance with article 4 of the "State Council General Office Notice on Establishing a Security Review System for Foreign Mergers and Acquisition of Domestic Enterprises" (SCGO Release (2011) No.6)
(3) For investments that affect or might affect national security, but where the influence can be eliminated by attaching conditions, the Joint Conference may require that foreign investors to submit a revised investment plan and written assurances. After written foreign investors submit written assurances, the Joint Conference may issue review opinions on attaching conditions.
(4) When regulatory agencies with jurisdiction of pilot free trade zones handle recording, approval and verification formalities for foreign investment within the scope of their functions, for foreign investment falling within the scope of security reviews, the foreign investors should be promptly told to submit an application for security review and the handling of formalities should be suspended.
(5) When the Ministry of Commerce informs foreign investors of the Joint Conference's written review opinion, it will inform the pilot free trade zone regulatory authorities at the same time. For foreign commercial investment that does not influence national security, or does not influence national security after adding conditions, the pilot free trade zone regulatory agencies will continue to handle the formalities.
(6) Pilot free trade zone regulatory agencies should do supervision and administration of foreign investment well. If it is discovered that foreign investors provided false information, omitted essential information, changed investment activities after the security review or violated attached conditions, and might cause significant impact on national security, then even if the security review of the foreign investment has already been concluded or investment has already been implemented, the free trade zone regulatory agencies should report to the National Development and Reform Commission and the Ministry of Commerce.
(7) the National Development and Reform Commission the Ministry of Commerce, and free trade zone regulatory authorities use information based methods to form linkage mechanisms in areas such as information sharing, real-time monitoring, dynamic management and periodic verification.

IV. Other Provisions

(1) These measures apply to foreign investment equity investment companies, venture investment enterprises, and investment company investments in the pilot free trade zones.
(2) the security review of foreign investment in the financial sector is separately provided for.
(3) Consult these measures for investment by investors from the Hong Kong S.A.R., Macau S.A.R., and Taiwan.
(4) The National Development and Reform Commission and the Ministry of Commerce are responsible for interpreting these Measures.
(5) These Measures will be implemented 30 days after the date they are issued.