Provisions for the Implementation of the System for Security Review of Acquisition of Domestic Enterprises by Foreign Investors

(Promulgated by the Ministry of Commerce on August 25 2011 and effective as of September 1 2011.)

Announcement of Mofcom [2011] No.53

Article 1: When a foreign investor proposes to acquire a domestic enterprise that falls within the scope of security review of acquisition (Security Review) as specified in the General Office of the State Council, Circular on the Establishment of a System for Security Review of Acquisition of Domestic Enterprises by Foreign Investors, it shall submit a Security Review application to the Ministry of Commerce.

If two or more foreign investors propose to jointly effect such acquisition, they may jointly submit a Security Review application to the Ministry of Commerce or they may designate one among them (the Applicant) to do so.

Article 2: When a competent local commerce department accepts an acquisition transaction application in accordance with relevant provisions such as the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors, the Several Provisions for Changes in the Equity Interests of Investors in Foreign-invested Enterprises and the Tentative Provisions on Investment Within China by Foreign-invested Enterprises and the acquisition falls within the scope of Security Review but the Applicant failed to submit a Security Review application to the Ministry of Commerce, the competent local commerce department shall suspend its handling of the application and, within five working days, request in writing that the Applicant submit a Security Review application to the Ministry of Commerce and report relevant matters to the Ministry of Commerce.

Article 3: If a relevant department of the State Council, national industry association, enterprise in the same industry or upstream or downstream enterprise is of the opinion that the acquisition of a domestic enterprise by a foreign investor requires the conduct of a Security Review, it may submit a proposal, together with an account of relevant circumstances (including the basic particulars of the acquisition transaction, the specific impact thereof on national security, etc.), to the Ministry of Commerce for the conduct of a Security Review. The Ministry of Commerce may require interested parties to submit relevant explanations. If the transaction falls within the scope of Security Review, the Ministry of Commerce shall submit the proposal to the Joint Conference within five working days. If the Joint Conference deems that the conduct of a Security Review is indeed necessary, the Ministry of Commerce shall, based on the decision of the Joint Conference, require the foreign investor to submit a Security Review application in accordance with these Provisions.

Article 4: Before submitting a formal Security Review application to the Ministry of Commerce, an Applicant may submit an application to the Ministry of Commerce for a consultation on the procedural issues involved in its acquisition of the domestic enterprise so as to discuss relevant matters in advance. Such preliminary consultation is not a mandatory procedure for the submission of a formal application, and the matters discussed during such consultation are not binding, have no legal effect and do not serve as a basis for submitting the formal application.

Article 5: When submitting a formal Security Review application to the Ministry of Commerce, an Applicant shall submit the following documents:

(1) a written Security Review application signed by the legal representative or authorised representative of the Applicant and an account of the transaction;

(2) the notarised and lawfully-authenticated proof of identity or proof of registration of the foreign investor and a document evidensing its creditworthiness; the proof of identity of the legal representative or the power of attorney of the authorised representative of the foreign investor and his or her proof of identity;

(3) an account of the foreign investor and its affiliates (including its de facto controller and parties acting in concert), and an account of its relationship with the government of the relevant country;

(4) an account of the target domestic enterprise, its articles of association, business licence (photocopy), audited financial statements for the previous year and its organisational chart before and after the acquisition, and an account of investee enterprises and their business licences (photocopy);

(5) the contract, articles of association or partnership agreement for and of the proposed post-acquisition foreign-invested enterprise, and a list of the members of the board of directors whom the shareholders propose to appoint, the general manager whom they propose to engage, partners or other such senior management personnel;

(6) if the transaction is to take the form of an acquisition of an equity interest, the equity transfer agreement or the agreement for the subscription by the foreign investor for the capital increase of the domestic enterprise, the shareholder resolution or shareholders' general meeting resolution of the target domestic enterprise and the pertinent asset appraisal report shall be submitted;

(7) if the transaction is to take the form of an acquisition of assets, the resolution of the authority organ of the domestic enterprise or of the title holder agreeing to the sale of the assets, the asset purchase agreement (including a list and description of the target assets), the particulars of the parties to the agreement and the pertinent asset appraisal report shall be submitted;

(8) an account of the impact that the voting rights enjoyed by the foreign investor after the acquisition will have on the resolutions of the shareholders' meeting or shareholders' general meeting, resolutions of the board of directors or execution of partnership affairs, an account of other circumstances that will lead to actual control over the business decision-making, financial affairs, personnel affairs, technology, etc. of the domestic enterprise passing to the foreign investor or a domestic or foreign affiliate thereof and agreements or documents relating the foregoing; and

(9) other documents as required by the Ministry of Commerce.

Article 6: If the Security Review application documents submitted by an Applicant are complete and satisfy the statutory requirements, the Ministry of Commerce shall notify the Applicant in writing that it has accepted its application.

If the acquisition falls within the scope of a Security Review, the Ministry of Commerce shall inform the Applicant thereof in writing within 15 working days and, within five working days thereafter, refer the same to the inter-ministerial joint conference for the security review of acquisition of domestic enterprises by foreign investors (the Joint Conference) for review.

The Applicant may not proceed with the acquisition transaction and the competent local commerce department may not approve the acquisition transaction for a period of 15 working days from the date on which the Applicant was notified in writing of the acceptance of its application. If the Ministry of Commerce has not given the Applicant written notice within the 15 working days, the Applicant may carry out the relevant procedures in accordance with relevant state laws and regulations.

Article 7: Once the Ministry of Commerce has received the written review opinion of the Joint Conference, it shall notify the Applicant (or the parties) and the competent local commerce department responsible for administration of the acquisition transaction of the review opinion in writing within five working days.

(1) If the transaction does not affect national security, the Applicant may, in accordance with relevant provisions such as the Provisions for the Acquisition of Domestic Enterprises by Foreign Investors, the Several Provisions for Changes in the Equity Interests of Investors in Foreign-invested Enterprises and the Tentative Provisions on Investment Within China by Foreign-invested Enterprises, carry out the acquisition transaction procedures with the relevant competent department possessing the pertinent administration authority.

(2) If the acquisition transaction could affect national security and has not yet been carried out, the parties shall terminate the transaction. The Applicant may not apply for and carry out the acquisition transaction without modifying the acquisition transaction, revising the application documents and undergoing a fresh review.

(3) If the acquisition of the domestic enterprise by the foreign investor has had or could have a material impact on national security, the Ministry of Commerce together with the relevant departments shall, pursuant to the review opinion of the Joint Conference, terminate the transaction of the parties, or order transfer of the relevant equity interest or assets or take other such effective measures, so as to eliminate the effect of the acquisition on national security.

Article 8: If an Applicant wishes to revise the submitted documents or cancel the acquisition transaction or supplements or revises materials at the request of the Joint Conference after the Ministry of Commerce has submitted the application to the Joint Conference for review, it shall submit the relevant documents to the Ministry of Commerce. The Ministry of Commerce shall submit the application and relevant documents to the Joint Conference within five working days after receipt thereof.

Article 9: With respect to an acquisition of a domestic enterprise by a foreign investor, the determination as to whether the acquisition transaction falls within the scope requiring a Security Review shall be made based on the substantive details and actual effect of the transaction. A foreign investor may not attempt to circumvent the Security Review by any means, including but not limited to holding on the behalf of another, a trust, multi-level reinvestment, lease, loan, control by agreement, offshore transaction or other such means.

Article 10: If an application for the acquisition of a domestic enterprise by a foreign investor is not submitted to the Joint Conference for review or if the Joint Conference is of the opinion, after review of such application, that the transaction would not affect national security, but subsequently, due to a revision of the acquisition transaction, amendment of the relevant agreement or documents, change in business activities or other change (including a change in the de facto controller offshore), the acquisition transaction falls within the scope of the Security Review as specified in the General Office of the State Council, Circular on the Establishment of a System for Security Review of Acquisition of Domestic Enterprises by Foreign Investors, the parties shall suspend the relevant transaction and activities, and the foreign investor shall submit a Security Review application to the Ministry of Commerce in accordance with these Provisions.

Article 11: The competent commerce department, relevant entities and individuals involved in a Security Review shall bear an obligation of confidentiality toward the state secrets, trade secrets and other information requiring confidentiality to which they were privy in the course of the Security Review.

Article 12: These Provisions shall be effective as of September 1 2011.