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

GBF [2015] No. 24

People's governments of all provinces, autonomous regions and municipalities directly under the Central Government, the ministries and commissions and directly affiliated institutions under the State Council:

The Tentative Measures for National Security Review of Foreign Investment in Pilot Free Trade Zones has been approved by the State Council and is hereby distributed to you for strict implementation.

General Office of the State Council

08.04.15

(The document is released to the public)

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

The Measures is stipulated for the purpose of ensuring the opening to the outside world for pilot free trade zones including China (Shanghai) Pilot Free Trade Zone, China (Guangdong) Pilot Free Trade Zone, China (Tianjin) Free Trade Zone, China (Fujian) Pilot Free Trade Zone (hereinafter referred to as Pilot Free Trade Zones), taking measures for national security review of foreign investment (hereinafter referred to as Security Review) which match with negative list management mode in pilot zones, guiding foreign investment in ordered development, and safeguarding national security.

I.Scope of review

General principle: performing Security Review of foreign investment which may possibly affect national security, national security guarantee capability, or is involved with sensitive investment subject, sensitive M&A object, sensitive industry, sensitive technology, and sensitive area.

(I)  Scope of Security Review: foreign investors' investment in military industry, military supporting and other fields related to national defense and security in Pilot Free Trade Zones and peripheral areas of key and sensitive military facilities; foreign investors' investment in important agricultural products, important energies and resources, important infrastructure, important transport services, important culture, important information technology products and services, key technologies, and major equipment manufacturing fields related to national security in Pilot Free Trade Zones, and with actual control right for the invested enterprises owned by the foreign investors.

(II) Foreign investors' investment in Pilot Free Trade Zones include the following circumstances:

1. Foreign investors invest independently or together with other investors for project construction or enterprise establishment.

2.Foreign investors obtain the equities or assets of established enterprises through M&A.

3.Foreign investors invest through agreement control, holding on behalf of others, trust, re-investment, overseas transaction, and subscription of convertible bonds.

(III)Foreign investors' acquisiton of actual control right for invested enterprises includes the following circumstances:

1.Foreign investors and associated investors thereof hold more than 50% total equities of the enterprise.

2.Several foreign investors hold more than 50% total equities of the enterprise.

3. Foreign investors, associated investors thereof, and several foreign investors hold not more than 50% total equities of the enterprise, but their voting power is enough to impose major influence on the resolution to be adopted by the board of shareholders, general meeting of shareholders or board of directors.

4.Other circumstances causing foreign investors to impose major influence on operation decision-making, personnel affairs, finance and technology of the enterprise.

II.Contents of review

(I) The influence of foreign investment on national security, including production capacity for domestic products, provision capacity for domestic services, and relevant facilities required for national defense.

(II) The influence of foreign investment on operation stability of national economy.

(III)The influence of foreign investment on basic life order of the society.

(IV)The influence of foreign investment on national culture security and public morality.

(V) The invluence of foreign investment on national network security.

(VI)The influence of foreign investment on R&D ability for key technologies involved with national security.

III. Work mechanism and procedure of Security Review

(I)The Security Review of foreign investment in Pilot Free Trade Zones will be undertaken by Security Review Department & Joint Conference for Foreign Investors' M&A of Domestic Enterprises (hereinafter referred to as Joint Conference).In the mechanism of Joint Conference, National Development and Reform Commission and the Ministry of Commerce will develop Security Review together with relevant departments according to the fields involved with foreign investment.

(II) Security Review Procedure for Pilot Free Trade Zones will be subject to the Notice of General Office of the State Council for the Establishment of Security Review System for Foreign Investors' M&A of Domestic Enterprises (G.F.B. [2011] No. 6).

(III) For the investment which will or may affect national security, but the influence can be eliminated through additional conditions, Joint Conference may require the foreign investors to issue a written commitment for the amendment of their investment plans.Joint Conference may give opinions for the review of additional conditions after foreign investors issue written commitment.

(IV)The administrations of Pilot Free Trade Zones shall, for the foreign investment covered in the scope of Security Review in handling filing, approval or review formalities for foreign investment in jurisdiction, notify foreign investors of raising application for Security Review in time, and shall suspend handling relevant formalities.

(V) The Ministry of Commerce will notify the administrations of Pilot Free Trade Zones upon sending written notice of letter of review opinions of Joint Conference to foreign investors.For the foreign investment which does not affect national security or will not affect national security after additional conditions are met, the administrations of Pilot Free Trade Zones may continue to handle relevant formalities.

(VI)The administrations of Pilot Free Trade Zones shall perform proper foreign investment supervision.The administrations of Pilot Free Trade Zones shall report to National Development and Reform Commission and the Ministry of Commerce foreign investors' provision of false information, omission of substantial information, change of investment activities or violation of additional conditions upon Security Review, even if Security Review of foreign investment has been completed or investment has been implemented.

(VII)Linkage mechanism shall be formed among National Development and Reform Commission, the Ministry of Commerce and the adiministrations of Pilot Free Trade Zones through information means and in terms of information sharing, real-time monitoring, dynamic management and regular review.

IV. Other Provisions

(I)The Measures applies to foreign investment by equity investment enterprises, venture capital enterprises and investment-oriented companies in Pilot Free Trade Zones.

(II) The Security Review of foreign investment in financial field will be specified separately.

(III)The investment by investors from Hong Kong Special Administrative Region, Macao Special Administrative Region and Taiwan Region shall be subject to the Measures.

(IV)The Measures is interpreted by National Development and Reform Commission and the Ministry of Commerce.

(V) The Measures goes into effect 30 days upon the date of issue.