PRC Foreign Investment Law (Draft for Comments)

(Issued by the Ministry of Commerce on January 19 2015.)

Part One: General Provisions

Article 1: Legislative Objectives

This Law has been formulated in order to expand the opening to the outside world, promote and regulate foreign investment, protect the lawful rights and interests of foreign investors, safeguard national security and the public interest and promote the healthy development of the socialist market economy.

Article 2: Scope of Application

This Law shall govern investment in China by foreign investors.

Article 3: Protection of Investments

The state shall protect the lawful rights and interests of foreign investors and foreign-invested enterprises in accordance with the law.

Article 4: Compliance with Domestic Laws

Foreign investors and foreign-invested enterprises shall comply with the law of China, and may not jeopardise national security or the public interest.

When investing and carrying out their business activities, foreign investors and foreign-invested enterprises shall comply with public ethics and business ethics, act in good faith, submit to public scrutiny and assume social responsibilities.

Article 5: Foreign Investment Administration System

The state implements a uniform foreign investment administration system.

Article 6: National Treatment

Foreign investors investing in China shall enjoy national treatment, unless otherwise provided by the Catalogues of Special Administrative Measures for Foreign Investment (the Special Administrative Measures Catalogues) formulated pursuant to Article 23, Catalogue Formulation Procedure, hereof.

Article 7: Investment Promotion

The state shall formulate and implement foreign investment promotion policies compatible with the socialist market economy, advance convenient investment procedures and establish and improve a uniform, open, competitive and orderly market regime.

Article 8: Principles of Openness and Transparency

The administration by the state of domestic investments by foreign investors shall comply with the principles of openness and transparency.

Article 9: Competent Foreign Investment Departments

The State Council department in charge of foreign investment shall be in charge of the administration and promotion of foreign investment nationwide in accordance herewith.

The competent foreign investment departments of local people's governments at the county level and above shall be responsible for the administration and promotion of foreign investment within their jurisdictions to the extent of their statutory authority.

Article 10: Investment Treaties

Based on the principles of equality and mutual benefit, the state shall promote and develop investment with other countries and regions, and conclude multilateral, bilateral and regional investment treaties, conventions and agreements.

Part Two: Foreign Investors and Foreign Investment

Article 11: Foreign Investors

For the purposes of this Law, the term “foreign investor” means an entity as set forth below that invests in China:

(1) a natural person who does not have Chinese nationality;

(2) an enterprise established pursuant to the laws of another country or region;

(3) the government of another country or region or a subordinate department or agency thereof; or

(4) an international organisation.

Enterprises in China controlled by the entities set forth in the preceding paragraph shall be deemed foreign investors.

Article 12: Chinese Investors

For the purposes of this Law, the term “Chinese investor” means an entity as set forth below:

(1) a natural person with Chinese nationality;

(2) the government of China or a subordinate department or agency thereof; or

(3) an enterprise in China controlled by either of the entities set forth in the preceding two items.

Article 13: Enterprises in China

For the purposes of this Law, the term “enterprise in China” means an enterprise established in China pursuant to the law of China.

Article 14: Foreign-invested enterprises

For the purposes of this Law, the term “foreign-invested enterprise” means an enterprise established in China pursuant to the law of China in which all or part of the investment is made by a foreign investor.

Article 15: Foreign investment

For the purposes of this Law, the term “foreign investment” means the following investment activities directly or indirectly engaged in by a foreign investor:

(1) establishment of an enterprise in China;

(2) the securing of shares of, equity in, a share of the property of, voting rights in, or other similar rights and interests in, an enterprise in China;

(3) the provision of financing with a term of at least one year to an enterprise in China in which a foreign investor holds rights and interests as specified in the preceding item;

(4) the securing of a concession for the exploration and/or development of natural resources in China or other resource jurisdiction belonging to China, or the securing of a concession for the construction and operation of infrastructure;

(5) the securing of immovable property rights such as land use rights and ownership of premises; and

(6) control of an enterprise in China or the holding of rights and interests in an enterprise in China by virtue of a contract, trust, etc.

If the de facto control of an enterprise in China is transferred to a foreign investor as a result of an overseas transaction, the same shall be deemed an investment in China by a foreign investor.

Article 16: Rights in Immovable Property

Where a foreign investor secures rights in immovable property in China such as land use rights and ownership of premises, relevant laws and regulations shall apply, and it shall additionally comply with the provisions of Part Four, National Security Reviews, and Part Five, Information Reporting, hereof.

Article 17: Non-profit Organisations

Where a foreign investor establishes a non-profit organisation or secures rights and interests in a non-profit organisation in China, relevant laws and regulations shall apply, and it shall additionally comply with the provisions of Part Four, National Security Reviews, and Part Five, Information Reporting, hereof.

Article 18: Control

For the purposes of this Law, the term “control” means, in respect of a certain enterprise, a circumstance complying with any of the following conditions:

(1) the direct or indirect holding of at least 50% of the shares of, equity in, share of the property of, voting rights in or other similar rights and interests in, such enterprise;

(2) although the shares, equity, share of the property, voting rights or other similar rights and interests of or in such enterprise directly or indirectly held are/is less than 50%, any one of the following circumstances applies:

(i) having the right to directly or indirectly appoint at least half of the members of the enterprise's board of directors or similar decision-making body;

(ii) having the capacity to ensure that the persons nominated by a party secure at least half of the seats on the enterprise's board of directors or similar decision-making body; or

(iii) the voting rights a party enjoys are sufficient to have a material impact on the resolutions of a decision-making body such as the shareholders' meeting, shareholders' general meeting or board of directors; or

(3) being able to exercise a decisive influence on the enterprise's operations, financial affairs, personnel affairs or technologies by virtue of a contract, trust or other such means.

Article 19: De Facto Controller

For the purposes of this Law, the term “de facto controller” means a natural person or enterprise that directly or indirectly controls a foreign investor or foreign-invested enterprise.

Part Three: Access Control

Section One: General Provisions

Article 20: Foreign investment Access System

The state implements a uniform foreign investment access system and exercises control over sectors in which foreign investment is prohibited or restricted pursuant to the Special Administrative Measures Catalogues.

Article 21: Authorities in Charge of Foreign Investment Access Control

The competent foreign investment departments, in concert with relevant departments, shall exercise access control in respect of foreign investment.

Article 22: Special Measures Catalogues

Where foreign investors and their investments are given treatment inferior to that of Chinese investors and their investments or they are subjected to other restrictions, the same must be provided for in the form of a law, a set of administrative regulations or a State Council decision and included in the Special Administrative Measures Catalogues.

Article 23: Catalogue Formulation Procedure

The Special Administrative Measures Catalogues shall be centrally formulated and issued by the State Council.

The State Council department in charge of foreign investment, together with relevant departments, shall put forth proposals to formulate or revise the Special Administrative Measures Catalogues based on the multilateral, bilateral and regional investment treaties, conventions and agreements concluded by the state and relevant foreign investment laws, administrative regulations and State Council decisions, and submit them to the State Council for deliberation.

Article 24: Types of Catalogues

The Special Administrative Measures Catalogues shall be divided into the prohibited catalogue and restricted catalogue.

The restricted catalogue shall set forth in detail the restrictive conditions on foreign investment.

Article 25: Prohibited Catalogue

Foreign investors may not invest in the sectors enumerated in the prohibited catalogue.

If a foreign investor directly or indirectly holds shares of, equity in, a share of the property of, or other rights and interests in, or voting rights in, an enterprise in China, such enterprise may not invest in the sectors enumerated in the prohibited catalogue, unless otherwise provided by the State Council.

Article 26: Restricted Catalogue

The restricted catalogue covers the following circumstances:

(1) investments exceeding the amounts set by the State Council; and

(2) sectors in which foreign investment is restricted.

If a foreign investment involves one of the circumstances set forth in the restricted catalogue, it shall satisfy the conditions specified in the restricted catalogue and an application for a foreign investment access permit shall be made to the competent foreign investment department in accordance herewith.

If not enumerated in the restricted catalogue, no access permit need be applied for.

Section Two: Access Permits

Article 27: Application for Foreign Investment Access Permits

Where an investment as specified in Item (1) of the first paragraph of Article 26, Restricted Catalogue, hereof is to be made, an application for an access permit shall be made to the State Council department in charge of foreign investment.

Where an investment as specified in Item (2) of the first paragraph of Article 26, Restricted Catalogue, hereof is to be made, an application for an access permit shall be made to the State Council department in charge of foreign investment or to the competent foreign investment department of the people's government of the province, autonomous region or municipality directly under the central government. The specific division of permit authority shall be specified by the State Council.

Article 28: Aggregate Calculation of Investment Amounts

If a foreign investor makes several investments in the same investment project during a two-year period and the aggregate investment amount reaches the limit set in the restricted catalogue, it shall apply for an access permit in accordance herewith.

Article 29: Financing Counted as Part of an Investment Amount

If a foreign investor directly or indirectly provides financing of a term of at least one year to an enterprise in China in which it has rights and interests, it shall count the financing amount as part of its investment amount.

Article 30: Access Permit Application Materials

When a foreign investor submits an application for an access permit to the competent foreign investment department pursuant to Article 27, Application for foreign investment Access Permits, hereof, it shall submit the following materials:

(1) a written application, including:

(i) information on the foreign investor and its de facto controller;

(ii) the basic particulars of the foreign investment, including the investment amount, investment sector, region of the investment, investment method, and capital contribution percentage and method;

(iii) an account of compliance with the requirements of the special administrative measures;

(iv) the effect of the foreign investment on energy resources, technological innovation, employment, environmental protection, work safety, regional development, capital account control and development of the industry;

(v) an account of whether a national security review or anti-monopoly review is triggered;

(vi) if a prior industry permit needs to be secured, the permit issued by the competent industry department;

(vii) if the establishment of, or a change in, a foreign-invested enterprise is involved, information on its organisational form, governance structure, etc.; and

(viii) the method of notification and service;

(2) documents and evidentiary materials relating to the contents of the application; and

(3) the representations and warranties of the foreign investor and its de facto controller and their undertakings as to the truthfulness and completeness of the application materials.

The competent foreign investment department may require the foreign investor to provide additional materials relating to the contents specified in the preceding paragraph.

Article 31: Acceptance

If the application materials are in good order and in the statutory format, the competent foreign investment department shall accept the access permit application and issue the applicant an acknowledgement of acceptance.

If the application materials are incomplete or not in the statutory format, the applicant shall be informed on the spot or within five working days on one occasion of all of the additional/corrected information it is required to provide. If the applicant is not informed by such time, its application shall be deemed accepted from the date of receipt of the application materials.

Article 32: Review Factors

The competent foreign investment department shall conduct its access review of a foreign investment with respect to the following aspects:

(1) its effect on national security;

(2) whether it satisfies the conditions set forth in the Special Administrative Measures Catalogues;

(3) its effect on energy resources, technological innovation, employment, environmental protection, work safety, regional development, capital account control, competition, the public interest, etc.;

(4) its actual effect on, and control over, the development of the industry;

(5) international treaty obligations;

(6) details of the foreign investor and its de facto controller; and

(7) other factors as specified by the State Council.

Article 33: Relationship Between Access Permits and Industry Permits

If a foreign investment involves a sector in which the securing of a prior industry permit is required, the competent foreign investment department shall give an account in its review decision of the obtaining of the industry permit.

If a foreign investment involves a sector in which the securing of an industry permit other than a prior industry permit is required, the competent foreign investment department shall seek the opinion of the relevant competent industry department when conducting its review. The competent industry department shall issue a review opinion. The competent foreign investment department shall note in its review decision the review opinion issued by the competent industry department.

Article 34: Linkage of Access Permits and Security Review

If, in conducting its access review, the competent foreign investment department discovers that the foreign investment jeopardises or could jeopardise national security, it shall suspend the access review procedure, and inform the applicant in writing to submit an application for a national security review; the competent foreign investment department of the people's government of the province, autonomous region or municipality directly under the central government conducting an access review shall report the relevant circumstances to the State Council department in charge of foreign investment. Unless the applicant withdraws its application for an access permit, the foreign investor shall submit an application for a national security review in accordance with Part Four, National Security Review, hereof.

Article 35: Time Limit for a Review

The competent foreign investment department shall complete its review within 30 working days from the date of acceptance of the application for an access permit. Where the circumstances are complex, such review may be extended by 30 working days.

If the circumstance specified in Article 34, Linkage of Access Permits and Security Review, hereof arises and the national security review procedure is launched, the time required to conduct the national security review shall not count toward the time limit for review specified in the preceding paragraph.

Article 36: Review Decision

The competent foreign investment department shall render a written decision approving, conditionally approving or denying a foreign investment and notify the applicant of the same; if it renders a decision giving conditional approval or denying approval, it shall give the reasons therefor.

Article 37: Types of Conditional Approval

When rendering its review decision, the competent foreign investment department may attach one or more of the following conditions:

(1) divestment of assets or business;

(2) restriction on shareholding percentage;

(3) requirement in respect of the term of operations;

(4) restriction on the region of investment;

(5) requirement on the percentage or number of local workers to be used; and/or

(6) other conditions as specified by the State Council.

If the competent foreign investment department attaches one or more of the foregoing conditions, it shall specify the same in its review decision.

Article 38: Solicitation of Opinions

When conducting its access review, the competent foreign investment department may solicit the opinions of the relevant departments, region and other materially interested parties.

Article 39: Solicitation of Public Opinions

When conducting its access review, the competent foreign investment department may, if it deems that the matter applied for could have a material impact on the public interest, solicit the opinion of the public by holding reasoning discussion sessions, public hearings or other such means.

Article 40: Opportunity to Argue One's Case

If the competent foreign investment department, in conducting its access review, proposes to render a decision giving conditional approval or denying approval, it shall give the foreign investor the opportunity to argue its case.

Article 41: Term of Validity of an Approval Decision

If a foreign investor fails to make its investment within one year from the date on which the decision granting approval is rendered, it shall give an explanation to the competent foreign investment department that rendered the decision granting approval. If the competent foreign investment department deems it necessary, the foreign investor shall submit a new application for an access permit.

Article 42: Handling Procedure

Where a foreign investment requires an access permit pursuant hereto, the foreign investor shall carry out registration, foreign exchange, tax and other such procedures after securing the access permit.

If, in accordance herewith, applying for an access permit is not required for a foreign investment, the foreign investor shall carry out registration, foreign exchange, tax and other such procedures in accordance with relevant laws and regulations.

Article 43: Publication of Permit Decisions

The competent foreign investment department shall publicly announce its foreign investment access permit decisions, with the exception of those that are not to be published according to law.

Article 44: Reports on Compliance with Attached Conditions

Where a conditional access permit has been secured in accordance herewith for a foreign investment, the foreign investor or foreign-invested enterprise shall, when submitting its annual report in accordance with Section Four, Regular Reports, of Part Five, Information Reporting, hereof, it shall give an account of relevant details pertaining to its compliance with the attached conditions in carrying out its business.

Article 45: Deemed Domestic Investment under a Situation of De Facto Control

If a foreign investor as specified in Item (2) of the first paragraph of Article 11, foreign investors, hereof is controlled by a Chinese investor, it may, when applying for an access permit if it makes investments in China falling within the scope of the restricted catalogue, submit written evidentiary materials and apply for its investments to be recognised as investments made by a Chinese investor.

When conducting its access permit review, the competent foreign investment department shall review the application submitted by the foreign investor in accordance with the preceding paragraph, render a review opinion as to whether the investments are to be deemed as ones made by a Chinese investor and state the same in its access permit decision.

Article 46: Guidelines for Foreign Investment Access Reviews

The State Council department in charge of foreign investment shall formulate and publish the guidelines for foreign investment access reviews.

Article 47: Inquiries

Foreign investors and their materially interested parties may make inquiries to the competent foreign investment department specified in Article 27, Application for foreign investment Access Permits, hereof in respect of the scope of, and procedure for, foreign investment access permits.

The competent foreign investment department shall give a reply within 10 working days after receipt of the inquiry application.

Part Four: National Security Reviews

Article 48: Security Review System

With a view to ensuring national security and regulating and promoting foreign investment, the state shall establish a uniform national security review system for foreign investment to carry out reviews of any foreign investments that jeopardise or could jeopardise national security.

Article 49: Joint Conference for Security Reviews

The State Council shall establish a ministerial joint conference for national security reviews of foreign investments (the Joint Conference) to be responsible for national security reviews of foreign investments.

The State Council's development and reform department and the State Council department in charge of foreign investment shall jointly serve as conveners of the Joint Conference and, together with the relevant departments with which the foreign investment involves, specifically conduct the national security review thereof.

Article 50: Application for Security Review by Investors

Where a foreign investment jeopardises or could jeopardise national security, the foreign investor may submit an application for a national security review to the State Council department in charge of foreign investment.

Article 51: Application Materials for a Security Review

When a foreign investor submits an application for a national security review to the State Council department in charge of foreign investment, it shall submit the following materials:

(1) a written application, including:

(i) details on the foreign investor, its de facto controller and senior management personnel;

(ii) the basic particulars of the foreign investment, including the investment amount, investment sector, region of the investment, investment method, capital contribution percentage and method, and business plan;

(iii) an account of how the foreign investment jeopardises or could jeopardise national security;

(iv) if the establishment of, or a change in, a foreign-invested enterprise is involved, information on its organisational form, governance structure, etc.; and

(v) the method of notification and service;

(2) documents and evidentiary materials relating to the contents of the application; and

(3) the representations and warranties of the foreign investor and its de facto controller and their undertakings as to the truthfulness and completeness of the application materials.

The State Council department in charge of foreign investment may, in the course of the national security review, require the foreign investor and other concerned parties to submit additional relevant materials.

Article 52: Appointment for Discussion

Before submitting an application for a security review to the State Council's department in charge of foreign investment, a foreign investor may make a request for discussion on procedural issues so as to communicate on relevant matters in advance.

Article 53: Determination of Whether a Security Review is Required

The State Council department in charge of foreign investment shall inform the applicant as to whether the relevant foreign investment requires the conduct of a national security review within 15 working days after receipt of the application materials specified in Article 51, Application Materials for a Security Review.

If the conduct of a national security review is required, the State Council department in charge of foreign investment shall, within five working days after informing the applicant, request that the Joint Conference conduct the review.

Article 54: Withdrawal of an Application for a Security Review by the Investor

Once a foreign investor has submitted an application for a national security review, it may not withdraw the same without the consent of the State Council department in charge of foreign investment.

Article 55: Launch of Security Review Ex Officio

The Joint Conference may ex officio decide to conduct a national security review of a foreign investment that jeopardises or could jeopardise national security.

If a relevant department, industry association, enterprise in the same industry, upstream or downstream enterprise or another concerned party other than the foreign investor deems that the conduct of a national security review is required for a certain foreign investment, it may suggest to the State Council department in charge of foreign investment that a national security review be conducted. If the Joint Conference deems that it is indeed necessary to conduct a national security review, it may decide to conduct such review.

If the Joint Conference renders a decision to launch a national security review, the State Council department in charge of foreign investment shall inform the foreign investor thereof in writing.

Article 56: Further Security Review

The Joint Conference may, in accordance with Article 55, Launch of Security Review Ex Officio, hereof conduct a further national security review of a foreign investment that has already undergone a review if:

(1) the foreign investor or another concerned party withheld relevant information, provided fraudulent materials or gave fraudulent statements during the review; or

(2) the foreign investor or another concerned party, in making the investment, breached the restrictive conditions attached in the review decision.

Article 57: Security Review Factors

The factors to be considered in conducting a national security review of a foreign investment include the following:

(1) the effect on national defence security, including the production capacity for domestic products, supply capacity for domestic services and relevant equipment and facilities required for national defence and the effect on the security of key and sensitive national defence facilities;

(2) the effect on the capacity for the research and development of key technologies that have a bearing on national security;

(3) the effect on the China's leading technological position that has a bearing on the national security sector;

(4) the effect on the spread of dual-use goods and technologies subject to import and export controls;

(5) the effect on the China's key infrastructure and key technologies;

(6) the effect on the China's information and network security;

(7) the effect on the long-term demand for energy, food grains and other key resources in China;

(8) whether the foreign investment is subject to foreign government control;

(9) the effect on the stable operation of the national economy;

(10) the effect on the public interest and public order; and

(11) other factors that the Joint Conference deems necessary to consider.

Article 58: Types of Security Review Decisions

Based on the outcome of a national security review, the State Council or Joint Conference may render the following decisions:

(1) giving the foreign investment a pass as it does not jeopardise national security;

(2) giving the foreign investment a conditional pass as it jeopardises or could jeopardise national security but the same can be eliminated through the attachment of restrictive conditions; or

(3) denying the foreign investment a pass as it jeopardises or could jeopardise national security and the same is impossible to eliminate.

Article 59: Obligation to Cooperate in Security Review

A foreign investor and other concerned parties shall cooperate in the national security review conducted by the Joint Conference, provide the information required for the review and submit themselves to the relevant questioning or check.

Article 60: Security Review Stages

A national security review conducted by the Joint Conference is divided into a general review stage and special review stage.

Article 61: Time Limit for a General Review

A general review shall be completed within 30 working days from the date on which the State Council department in charge of foreign investment makes the request to the Joint Conference to conduct the review pursuant to Article 53, Determination of Whether a Security Review is Required, hereof or the date on which the Joint Conference decides to conduct a national security review pursuant to Article 55, Launch of Security Review Ex Officio, hereof.

Article 62: General Review Opinion

If the Joint Conference, following the general review, deems that the foreign investment does not jeopardise national security, it shall produce a review opinion and notify the State Council department in charge of foreign investment in writing. If it deems that there is a risk that the foreign investment could jeopardise national security, it shall decide to conduct a special review and notify the State Council department in charge of foreign investment in writing.

The State Council department in charge of foreign investment shall notify the applicant and relevant concerned parties in writing within five working days after receipt of the Joint Conference's review opinion.

Article 63: Time Limit for a Special Review

A special review shall be completed within 60 working days from the date of commencement of the special review procedure pursuant to Article 62, General Review Opinion, hereof.

Once the special review procedure is commenced, the Joint Conference shall arrange for a security assessment of the foreign investment and conduct its review in light of the assessment opinion.

Article 64: Special Review Opinion

If the Joint Conference, following the special review, deems that the foreign investment does not jeopardise national security, it shall put forward a written review opinion and notify the State Council department in charge of foreign investment in writing. The State Council department in charge of foreign investment shall notify the applicant and relevant concerned parties in writing within five working days after receipt of the Joint Conference's review opinion.

If, in the course of the special review, the Joint Conference deems that the foreign investment jeopardises or could jeopardise national security, it shall put forward a written review opinion and forward the same to the State Council for a decision. If a pass is given, the State Council department in charge of foreign investment shall notify the applicant and relevant concerned parties in writing; if denied, the State Council shall render a decision of denial.

Article 65: Attachment of Restrictive Conditions

With a view to avoiding the threat that the relevant foreign investment could pose to national security, the applicant may, before rendering of the review decision, propose to the State Council department in charge of foreign investment the attachment of restrictive conditions to the relevant foreign investment.

The Joint Conference shall assess the effectiveness and feasibility of the proposal.

The Joint Conference may, based on the outcome of the assessment, agree upon attached restrictive conditions with the relevant concerned parties, including making necessary revisions to the investment, so as to eliminate its potential threat to national security.

Article 66: Conditional Pass

Following the assessment and the reaching of a consensus with the concerned parties, the Joint Conference may render a decision giving a conditional pass and notify the State Council department in charge of foreign investment in writing to inform the applicant and relevant concerned parties.

Article 67: Monitoring of Implementation of Attached Conditions

If a foreign investment conditionally passes the national security review pursuant hereto, the foreign investor and/or foreign-invested enterprise shall, when submitting annual reports pursuant to Section Four, Regular Reports, of Part Five, Information Reporting, hereof, additionally give an account of relevant information on its/their compliance with the restrictive conditions during the previous year.

The State Council department in charge of foreign investment shall, in concert with relevant departments, take appropriate measures to monitor the implementation of restrictive conditions. If a relevant concerned party breaches the restrictive conditions, jeopardising or potentially jeopardising national security, the State Council department in charge of foreign investment may make a request for a further national security review pursuant to Article 56, Further Security Review, hereof.

Article 68: Security Review Guidelines

The State Council's department in charge of foreign investment shall formulate and publish the guidelines for national security reviews of foreign investments.

Article 69: Annual Security Review Reports

The State Council department in charge of foreign investment shall prepare and publish annual reports of national security reviews of foreign investments.

Article 70: Interim Security Review Measures

In the course of a national security review procedure, the State Council department in charge of foreign investment may take necessary interim measures to safeguard national security.

Article 71: Mandatory Security Review Measures

If, following a national security review, it is determined that a foreign investment has materially jeopardised or could materially jeopardise national security, the State Council department in charge of foreign investment shall order the concerned parties not to make or to terminate the foreign investment, transfer the relevant equity or assets or take other effective measures to eliminate or avoid the threat to national security posed by the foreign investment.

The State Council department in charge of foreign investment may, in concert with relevant departments, take necessary measures to eliminate or avoid the threat to national security posed by the foreign investment.

Article 72: Bearing of Legal Liability

If a foreign investor makes an investment without applying for a national security review and a loss is caused to the investment by the measures taken by the State Council department in charge of foreign investment in accordance with Article 70, Interim Security Review Measures, or Article 71, Mandatory Security Review Measures, hereof, the same shall be borne by the foreign investor.

Article 73: No Administrative Reconsideration or Lawsuits

No administrative reconsideration or administrative action may be instituted against a national security review decision rendered in accordance with this Part.

Article 74: Security Review System for Foreign Investments in the Financial Sector

The national security review system for investments in the financial sector by foreign investors shall be specified separately by the State Council.

Part Five: Information Reporting

Section One: General Provisions

Article 75: Information Reporting System

The state shall establish and improve a foreign investment information reporting system to accurately and comprehensively gain an understanding of the details of foreign investment and the operation of foreign-invested enterprises nationwide in a timely manner for the purpose of providing a basis for formulating and improving foreign investment laws, regulations and policies, and promoting and guiding foreign investment.

Article 76: Administration of Information Reports

The State Council's department in charge of foreign investment shall establish a foreign investment information reporting system, formulate an information report administration system and be responsible for the work associated with the collation, analysis, publication and exchange with third parties of foreign investment information on a nationwide basis.

Article 77: Foreign Investment Analytical Reports

The State Council department in charge of foreign investment shall prepare and issue annual foreign investment analytical reports that include contents such as industry analyses, economic effectiveness and social impact of, and policy recommendations concerning, foreign investment.

Article 78: Information Reporting Entities

Foreign investors and foreign-invested enterprises shall perform information reporting obligations in accordance herewith.

Article 79: Means of Information Reporting

Foreign investors and foreign-invested enterprises shall report information to the State Council department in charge of foreign investment through the foreign investment information reporting system.

Article 80: Truthful Reporting

Foreign investors and foreign-invested enterprises shall truthfully, accurately and completely provide information in accordance herewith, and the same may not contain false records, misleading statements or material omissions.

Article 81: Portfolio Investment Reports

A foreign investor that purchases shares of a company listed in China shall perform its reporting, announcement and other statutory obligations in accordance with the Securities Law and relevant provisions of the State Council's securities regulator.

If a foreign investor purchases at least 10% of the shares of a company listed in China or, although it purchases less than 10% thereof, the same results in a change in the control of the company listed in China, it shall perform its reporting obligations in accordance with this Part.

If a foreign investor purchases less than 10% of the shares of a company listed in China and the same does not result in a change in the control thereof, it shall perform its reporting obligations in accordance with Article 93, Contents of Annual Reports—Portfolio Investments, hereof.

Article 82: Publication of Reported Information

The State Council department in charge of foreign investment may make the information provided by foreign investors and foreign-invested enterprises available to the public through the foreign investment information reporting system.

Article 83: Consultation of Reported Information

Citizens, legal persons and other organisations may apply in accordance with the law to the State Council's department in charge of foreign investment to consult on foreign investment information.

Article 84: Exceptions to the Publication of Information

If foreign investment information involves the trade secrets or personal privacy of a foreign investor or foreign-invested enterprise, it shall not be made public, unless otherwise provided in laws or administrative regulations.

Section Two: Foreign Investment Reports

Article 85: Timing of Information Reports

A foreign investor or foreign-invested enterprise shall submit an information report in accordance with this Section before an investment is made or within 30 days from the date on which it is made.

If laws or regulations require the registration of the making of a foreign investment, the date on which the relevant registration is completed shall be the date on which the investment is made. In the absence of such a registration requirement, the date on which the investment transaction is completed shall be the date on which the investment is made.

Article 86: Reporting of a Change in an Actual Investment

If a foreign investor submits an information report before making an investment and a change in the actual circumstances of the investment occurs, it shall report the details of the change within 30 days from the date on which the investment is made.

Article 87: Contents of Information Reports

If the investment in China by a foreign investor involves the establishment of, or a change in, a foreign-invested enterprise, the foreign-invested enterprise shall report the following information:

(1) the basic particulars of the foreign investor, including its name, domicile, place of registration, de facto controller, organisational form, main business, contact person and contact information;

(2) the basic particulars of the foreign investment, including the investment amount, place of origin of the investment, investment sector, region of the investment, investment date, investment method, capital contribution percentage and method, and details on the securing of relevant administrative permissions or record filings; and

(3) the basic particulars of the foreign-invested enterprise, including its name, domicile, organisation code, place of registration, equity structure, investment amount, registered capital, de facto controller, organisational form, scope of business, contact person and contact information.

If the investment in China of a foreign investor does not involve the establishment of, or a change in, a foreign-invested enterprise, only the information specified in Items (1) and (2) of the preceding paragraph need be reported.

The competent foreign investment department may require the foreign investor or foreign-invested enterprise to provide additional materials relating to the information in the preceding two paragraphs.

Article 88: Reporting of Details of Access Permits

If a foreign investment requires the securing of an access permit in accordance herewith, the reporting obligations shall be performed within 30 days after the access permit is secured. In addition to reporting relevant information in accordance with Article 87, Contents of Information Reports, hereof, relevant details of the securing of the access permit shall be reported.

Section Three: Reporting Changes in Foreign Investments

Article 89: Contents of Reports on Changes

If a change in a foreign investment occurs, the foreign investor or foreign-invested enterprise shall submit a report on the change within 30 days after the occurrence of the change.

For the purposes of the preceding paragraph, the term “change” includes:

(1) a change in the name, domicile, place of registration, de facto controller, organisational form, main business, contact person or contact information of the foreign investor;

(2) a change in the status of the foreign investor due to a merger, division, bankruptcy, dissolution, closing down, revocation, deregistration or change of nationality or death;

(3) a change in the investment amount, place of origin of the investment, investment sector, region of the investment, investment date, investment method, capital contribution percentage or method, or details on the securing of relevant administrative permissions or record filings of the foreign investment;

(4) the transfer, leasing out, mortgage or pledge of the rights and interests in the foreign investment;

(5) a change in the name, domicile, organisation code, place of registration, equity structure, investment amount, registered capital, de facto controller, organisational form, scope of business, contact person or contact information of the foreign-invested enterprise; or

(6) a change in the status of the foreign-invested enterprise due to a merger, division, bankruptcy, dissolution, closing down, revocation or deregistration.

The competent foreign investment department may require the foreign investor or foreign-invested enterprise to provide additional materials relating to the information in the preceding paragraph.

Article 90: Triggering of New Access Permits

If a change as specified in Article 89, Contents of Reports on Changes, hereof occurs, triggering a new foreign investment access permit, the foreign investor shall apply for an access permit in accordance herewith.

Article 91: Breach of Access Permit Conditions

If a change as specified in Article 89, Contents of Reports on Changes, hereof occurs, potentially breaching the conditions attached in the foreign investment access permit, the foreign investor shall additionally give an account thereof when submitting its report on the change and propose a solution. The competent foreign investment department that issued the access permit may, depending on the circumstances, launch an investigation and, if necessary, order the foreign investor to take remedial measures or apply for a new access permit in accordance herewith.

Section Four: Regular Reports

Article 92: Contents of Annual Reports

If the investment in China by a foreign investor involves the establishment of, or a change in, a foreign-invested enterprise, the foreign-invested enterprise shall submit an information report, containing the following information, for the previous year by April 30 each year:

(1) the basic particulars of the foreign investor, including its name, domicile, place of registration, de facto controller, organisational form, main business, contact person and contact information;

(2) the basic particulars of the foreign investment, including the investment amount, place of origin of the investment, investment sector, region of the investment, investment date, investment method, capital contribution percentage and method, and details on the securing of relevant administrative permissions or record filings;

(3) the basic particulars of the foreign-invested enterprise, including its name, domicile, organisation code, place of registration, equity structure, investment amount, registered capital, de facto controller, organisational form, scope of business, contact person and contact information;

(4) information on the business situation of the foreign-invested enterprise during the previous year, including the industry and sector, main products or services, imports and exports, employment of staff, payment of taxes, and research and development;

(5) financial accounting information of the foreign-invested enterprise for the previous year, including assets, liabilities, owners' equity, revenues, expenses and profit;

(6) information on the investments and import-export trade carried out by the foreign-invested enterprise or foreign investor, and its affiliated parties during the previous year; and

(7) information on the material legal actions, administrative reconsiderations, and administrative or criminal penalties that the foreign-invested enterprise was involved in, or subject to, in China and abroad during the previous year as well as complaints lodged by it, etc. in accordance with Part Eight, Coordination and Handling of Complaints, hereof.

If the investment in China of a foreign investor does not involve the establishment of, or a change in, a foreign-invested enterprise, it shall submit its annual report by April 30 each year, which report shall contain the information specified in Items (1) and (2) of the preceding paragraph as well as details of investment asset transactions and investment returns during the previous year.

The competent foreign investment department may require the foreign investor or foreign-invested enterprise to provide additional materials relating to the information in the preceding two paragraphs.

Article 93: Contents of Annual Reports—Portfolio Investments

If a foreign investor purchases less than 10% of the shares of a company listed in China and the same does not result in a change in the control thereof, it shall submit an annual report containing the following information by April 30 each year:

(1) its name, domicile, place of registration, de facto controller, organisational form, main business, contact person and contact information;

(2) the name, stock code and scope of business of the listed company; and

(3) details on the trading of the shares during the previous year.

Article 94: Quarterly Reports of Key Foreign-invested Enterprises

foreign-invested enterprises controlled by a foreign investor, and the total assets, sales turnover or operating revenue of which exceed(s) Rmb10 billion, or the number of subsidiaries of which exceed 10 shall report the information on their quarterly business situation and financial accounting information within 30 days after the end of each quarter.

Article 95: Consolidated Reports

A foreign-invested enterprise shall, after consolidating relevant information on the enterprises in China that it directly or indirectly controls, report all of the same together.

Section Five: Foreign Investment Statistics

Article 96: Foreign Investment Statistics

The State Council department in charge of foreign investment shall, in accordance with the Statistics Law and relevant state provisions, establish and improve a foreign investment statistics and survey system and statistical standards, organise, coordinate and manage foreign investment statistics and survey work on a nationwide basis, carry out statistical analyses by integrating the contents of the information reports of foreign investors and foreign-invested enterprises, publish statistical data and duly carry out the work associated with file management, data and information sharing and exchanges with third parties.

Article 97: Statistical Reports

The State Council department in charge of foreign investment shall collate and summarise the relevant contents of the information reports submitted by foreign investors and foreign-invested enterprises, and prepare and publish statistical reports on foreign investment.

Article 98: Obligation to Provide Information

When the State Council department in charge of foreign investment is carrying out foreign investment statistical work, it may, in accordance with the law, require relevant regions and departments to provide relevant information and data, and such relevant regions and departments shall offer their cooperation.

Article 99: Sharing of Statistical Data

The State Council department in charge of foreign investment shall provide statistical data on foreign investment to relevant departments in accordance with the law.

Part Six: Investment Promotion

Article 100: Investment Promotion Mechanisms

The state shall formulate foreign investment development strategies, establish and improve foreign investment promotion mechanisms, guide foreign investment in such a way that it is compatible with the national economy and society in China and enhance the quality and standard of the use of foreign investment.

Article 101: Investment Promotion Policies

The state shall formulate in accordance with the law fiscal, tax, financial, human talent, industry, training and research and development policies and measures so as to promote foreign investment.

Article 102: Industry and Regional Policies

The state shall, in line with the needs of domestic social and economic development and the state of industrial transformation, promote investment by foreign investors in industries and sectors encouraged by the state as well as in special economic zones, autonomous ethnic regions and economically underdeveloped areas, and their establishment of product, service and technologically advanced foreign-invested enterprises.

Article 103: Investment Promotion Services

The state shall establish a foreign investment public service system to provide to foreign investors and other members of the public investment promotion services relating to foreign investment in areas such as laws and regulations, policies and measures, and investment projects and information.

Article 104: Investment Promotion Order

The state promotes the establishment of a rational and compliant investment promotion order.

Foreign investment may not be encouraged in a manner that jeopardises national security, the public interest, the public's life and health, the ecological environment, the rights and interests of workers, etc.

Article 105: International Investment Promotion Agency

The state supports the international investment promotion agency in organising and carrying out foreign investment promotion activities. The international investment promotion agency shall perform the following duties under the guidance of the State Council department in charge of foreign investment:

(1) implementing the state's strategic plans and policy measures relating to foreign investment;

(2) establishing and implementing a system for assessment of the national investment environment;

(3) establishing a national foreign investment public information, project and consulting service platform;

(4) carrying out investment promotion activities and investment promotion training work nationwide;

(5) establishing overseas investment promotion offices;

(6) carrying out exchanges and cooperating with the investment promotion agencies and international investment promotion organisations of other countries and regions; and

(7) accepting and coordinating the handling of complaints from foreign investors and assisting in safeguarding the lawful rights and interests of foreign investors and foreign-invested enterprises.

Article 106: International Investment Exchange Platform

The international investment promotion agency shall organise and establish an international investment exchange platform to boost and promote transnational investment.

Article 107: Investment Information Website and Database

The international investment promotion agency shall establish and improve an international investment promotion website and international investment project database.

Article 108: Local Investment Promotion

The state encourages each region to establish and improve an international investment promotion mechanism and establish a dedicated investment promotion body.

Article 109: Special Economic Regions

The State Council may establish special economic regions to promote foreign investment and expand the opening to the outside world.

Article 110: Administration of Special Economic Regions

The State Council department in charge of foreign investment, together with relevant competent departments, shall guide, serve and administer special economic regions within their respective purviews.

Part Seven: Investment Protection

Article 111: Expropriation

Except in special circumstances, the state shall not expropriate foreign investments.

If the state is to expropriate a foreign investment in the public interest, it shall do so by the statutory procedure and pay compensation in accordance with the law.

Article 112: Requisitioning

The immovable property or movable assets in China of a foreign investor or foreign-invested enterprise may be requisitioned by the authority and procedure specified in laws for emergency purposes such as rescue and disaster relief.

If the immovable property or movable assets in China of a foreign investor or foreign-invested enterprise is/are requisitioned, a reasonable use fee shall be paid therefor in accordance with the law. After use, the requisitioned immovable property or movable assets shall be returned to the party from whom it/they were requisitioned. If the requisitioned immovable property or movable assets is/are damaged, destroyed or lost, compensation shall be paid therefor in accordance with the law.

Article 113: State Compensation

If a state authority or a member of its working personnel, in illegally exercising its/his functions and powers, causes a foreign investor or foreign-invested enterprise to incur a loss, the foreign investor or foreign-invested enterprise shall have the right to demand compensation in accordance with the law.

Article 114: Transfer

Unless otherwise provided in laws or administrative regulations, the state permits the free inward and outward transfer of the lawful property, such as capital contributions, profits, proceeds from the disposal of assets and lawfully obtained compensation or indemnification of foreign investors.

Article 115: Transparency

The state shall publish laws, regulations and judicial judgments relating to foreign investment in accordance with the law in a timely manner.

Foreign investors and foreign-invested enterprises may participate in accordance with the law in the procedure for the formulation of laws and regulations, and comment and express their opinions thereon.

Article 116: Protection of Intellectual Property

The state shall protect the intellectual property of foreign investors and foreign-invested enterprises in accordance with the law.

Article 117: Chambers of Commerce and Associations

Foreign investors and foreign-invested enterprises may establish in accordance with the law and voluntarily join chambers of commerce and associations and, to the extent permitted by laws, regulations and the organisations' charters, carry out relevant activities and safeguard their rights and interests.

Article 118: Resolution of Disputes

Where a dispute arises in the course of a foreign investor's investment or business activities in China, it may resolve the same in accordance with relevant laws and regulations by means such as consultations, mediation, lodging of a complaint, reconsideration, arbitration or litigation.

Part Eight: Coordination and Handling of Complaints

Article 119: Complaint Coordination and Handling Mechanism

The state shall establish a complaint coordination and handling mechanism which shall be responsible for coordinating and handling investment disputes between foreign investors and foreign-invested enterprises, on the one hand, and administrative authorities, on the other hand.

Article 120: Duties of the Complaint Coordination and Handling Centre

The international investment promotion agency shall establish a national foreign investment complaint coordination and handling centre to coordinate and handle on a nationwide basis foreign investment complaints that have a major impact, and perform the following duties:

(1) accepting and forwarding foreign investment complaints;

(2) coordinating and handling foreign investment complaints with relevant regions and departments;

(3) procuring and checking the implementation of foreign investment complaint handling plans;

(4) depending on the actual circumstances of foreign investment complaints, making proposals to relevant regions and departments for improving policies and their work; and

(5) studying and analysing foreign investment complaints, and submitting reports to the State Council department in charge of foreign investment.

Article 121: Requesting Assistance

As required for foreign investment complaint coordination and handling work, the national foreign investment complaint coordination and handling centre may require relevant regions and departments to explain the circumstances, provide materials and provide other necessary assistance.

Article 122: Coordination and Handling Proposals

Where the national foreign investment complaint coordination and handling centre makes a proposal to relevant regions or departments in accordance with Article 120, Duties of the Complaint Coordination and Handling Centre, hereof, the relevant regions or departments shall handle the matter and give feedback on their handling thereof in a timely manner.

Article 123: Complaint Coordination and Handling Organisation

As required, people's governments at the county level and above shall establish foreign investment complaint coordination and handling organisations to accept, coordinate and handle complaints lodged in their jurisdictions against administrative authorities by foreign investors and foreign-invested enterprises in investment disputes and be responsible for handling complaints transferred to them by the national foreign investment complaint coordination and handling centre

Article 124: Principles of Complaint Coordination and Handling

A foreign investment complaint coordination and handling organisation shall comply with the principles of fairness, impartiality and lawfulness, and coordinate and handle complaints in accordance with this Law and relevant laws and regulations.

Article 125: Truthful Complaints

When lodging a complaint, a foreign investor or foreign-invested enterprise shall truthfully reflect the circumstances, provide the pertinent evidence and cooperate with the foreign investment complaint coordination and handling organisation in its work.

Part Nine: Monitoring Inspections

Article 126: Monitoring Inspections

Competent foreign investment departments shall strengthen their monitoring inspections of the compliance with this Law by foreign investors and foreign-invested enterprises.

Industry and commerce, tax, exchange control, auditing and other such competent administrative departments shall perform their monitoring inspection functions in accordance with the law.

Article 127: Launching of Monitoring Inspections

A competent foreign investment department may launch a monitoring inspection of a foreign investor or foreign-invested enterprise on the basis of the following:

(1) regular random inspection;

(2) inspection conducted on the basis of a report;

(3) inspection conducted on the basis of a recommendation by, and the circumstances reflected by, a relevant department or judicial authority; or

(4) another inspection launched ex officio.

Article 128: Random Inspections

Random inspections are divided into non-targeted and targeted random inspections.

The term “non-targeted random inspection” means that the competent foreign investment department randomly determines the parties and the matters to be inspected. The term “targeted random inspection” means that the competent foreign investment department randomly determines the parties to be inspected based on a specific criterion, such as type of foreign investment, size of operations, industry or geographical area.

Article 129: Reporting

Any entity or individual shall have the right to report a suspected violation of this Law to the competent foreign investment department.

The party making such a report may request that the competent foreign investment department afford him or her confidentiality.

Article 130: Verification of Reports

A party making a report shall provide his/her basic particulars and those of the party being reported on and the facts and evidence relating to the suspected violation hereof.

If it deems it necessary, the competent foreign investment department shall carry out verification.

Article 131: Contents of Inspection

The contents of an inspection shall include:

(1) whether an investment was made in a sector enumerated in the prohibited catalogue;

(2) whether an investment was made without a permit in a sector enumerated in the restricted catalogue;

(3) whether the conditions attached in the access permit decision have been complied with;

(4) whether the restrictive conditions attached in the national security review decision have been complied with;

(5) whether the information reporting obligations have been performed;

(6) whether the administrative penalty decision rendered by the competent foreign investment department has been performed;

(7) whether an act jeopardising national security or the public interest has been committed; and

(8) whether another violation hereof has been committed.

Article 132: Inspection Method

In conducting its inspection, the competent foreign investment department may do so by means of online monitoring, survey questionnaire, on-the-spot check, etc.

Article 133: On-the-spot Check

When the competent foreign investment department conducts an on-the-spot check, there may not be fewer than two inspectors, and they shall present their credentials during the inspection. The inspectors shall complete an on-the-spot check record and truthfully record the details of the check, and the same shall be signed or stamped by the enterprise or person being inspected. If a signature or stamp cannot be secured, the inspectors shall note the reason therefor and, if necessary, they may ask relevant persons to act as witnesses.

Article 134: Professional Conclusion

As required by an inspection, the competent foreign investment department may appoint an accounting firm, tax accounting firm, law firm or other such professional firm to provide capital verification, auditing, authentication, consulting or other such professional service.

The competent foreign investment department may use the results of inspections or checks conducted by other government departments.

Article 135: Cooperation in Inspection

During an inspection, the competent foreign investment department may, in accordance with the law, review, or request the provision by the party being inspected of, relevant materials, and the party being inspected shall truthfully provide the same.

Article 136: Inspection Discipline

When conducting an inspection, the competent foreign investment department may not hinder the normal production and business activities of the party being inspected, may not accept property or services offered by the party being inspected and may not seek other illegal benefits.

Article 137: Handling of Inspections

If it is found in the course of an inspection that the party being inspected may have violated this Law, the competent foreign investment department may launch an investigation in accordance with the law, and if such investigation confirms the existence of a violation of the law, penalties shall be imposed in accordance with Part Ten, Legal Liability, hereof.

Article 138: Information Sharing

Competent foreign investment departments and other relevant competent administrative departments shall realise the sharing of information on the administration of foreign investment.

Article 139: Local Inspections

The State Council department in charge of foreign investment shall be responsible for guiding foreign investment monitoring inspection work nationwide and, as required, shall conduct or arrange for the local competent foreign investment department to conduct the inspection work.

The competent foreign investment departments of local people's governments at the county level and above shall be responsible for arranging for or conducting foreign investment inspection work in their jurisdictions.

Article 140: Guidance and Monitoring of Local Inspections

Higher level competent foreign investment departments shall strengthen their guidance and monitoring of the inspection work conducted by lower level competent foreign investment departments and promptly rectify relevant violations of the law.

Article 141: Integrity Files

The State Council department in charge of foreign investment shall establish a foreign investment integrity file system.

The information recorded in the foreign investment integrity file system shall include the information generated by foreign investors and foreign-invested enterprises in the course of activities such as registration of establishment, production and operations as well as information reflecting their integrity status that comes into the possession of competent foreign investment departments and other competent departments in the course of monitoring inspections.

The specific measures for the administration of the foreign investment integrity file system shall be provided for separately by the State Council.

Article 142: Publication of Integrity Information

Competent foreign investment departments may publish the integrity information of foreign investors and foreign-invested enterprises in accordance with the law.

The public may apply to consult the integrity information of foreign investors and foreign-invested enterprises.

The integrity information published or disclosed to others pursuant to the preceding two paragraphs may not contain the trade secrets or personal privacy of foreign investors and foreign-invested enterprises, unless otherwise provided in laws or administrative regulations.

Article 143: Correction of Integrity Information

Foreign investors and foreign-invested enterprises may consult their own integrity information contained in the foreign investment integrity file system, and if they deem the information recorded therein to be incomplete or to contain errors, they may provide the relevant evidentiary materials and apply for correction. The same shall be corrected if found to be true after checking.

Part Ten: Legal Liability

Article 144: Investment in the Prohibited Catalogue

If a foreign investor invests in a sector enumerated in the prohibited catalogue, the competent foreign investment department of the people's government of the province, autonomous region or municipality directly under the central government where the investment is located shall order it to halt the investment, dispose of the equity or other assets within a specified period of time, confiscate the illegal income and impose a fine of not less than Rmb100,000 and not more than Rmb1 million or of up to 10% of the illegal investment amount.

Article 145: Violation of Access Permit Provisions

If a foreign investor invests without a permit in a sector enumerated in the restricted catalogue, the competent foreign investment department of the people's government of the province, autonomous region or municipality directly under the central government where the investment is located shall order it to halt the investment, dispose of the equity or other assets within a specified period of time, confiscate the illegal income and impose a fine of not less than Rmb100,000 and not more than Rmb1 million or of up to 10% of the illegal investment amount.

If a foreign investor breaches the conditions attached in the foreign investment access permit, the competent foreign investment department that rendered the permit decision shall order it to rectify the matter within a specified period of time and impose a fine of not less than Rmb50,000 and not more than Rmb500,000 or of up to 5% of the investment amount. If the foreign investor fails to rectify the matter by the deadline or the circumstances are serious, the competent foreign investment department may revoke the access permit.

Article 146: Violation of National Security Review Provisions

The State Council department in charge of foreign investment shall order a foreign investor to rectify the matter within a specified period of time, impose a fine of not less than Rmb100,000 and not more than Rmb1 million or of up to 10% of the investment amount and may institute a further national security review in accordance with Article 56, Further Security Review, hereof if:

(1) it withheld relevant information, provided fraudulent materials or gave fraudulent statements during the national security review; or

(2) it breached the restrictive conditions attached in the national security review decision.

Article 147: Administrative Legal Liability for Breach of Information Reporting Obligations

If a foreign investor or foreign-invested enterprise violates this Law by failing to perform on time or evading the performance of its information reporting obligations, or, in reporting information, it conceals the true circumstances or provides misleading or false information, the competent foreign investment department of the people's government of the province, autonomous region or municipality directly under the central government where the investment is located shall order it to rectify the matter within a specified period of time. If the foreign investor fails to rectify the matter by the deadline or the circumstances are serious, the competent foreign investment department shall impose a fine of not less than Rmb50,000 and not more than Rmb500,000 or of up to 5% of the investment amount.

Article 148: Criminal Legal Liability for Breach of Information Reporting Obligations

If a foreign investor or foreign-invested enterprise violates this Law by evading the performance of its information reporting obligations, or, in reporting information, it conceals the true circumstances or provides misleading or false information, and the circumstances thereof are particularly serious, the entity shall be imposed a fine and the manager directly in charge and other responsible persons shall be sentenced to imprisonment for up to one year or criminal detention.

Article 149: Legal Liability for Circumvention

If a foreign investor or foreign-invested enterprise circumvents the provisions hereof by investing in a sector enumerated in the prohibited catalogue, investing without a permit in a sector enumerated in the restricted catalogue or breaching the information reporting obligations specified herein by way of holding by a third party, trust, multilevel reinvestment, lease, contracting, financing arrangement, control by agreement, an overseas transaction or otherwise, penalties shall be imposed in accordance with Article 144, Investment in the Prohibited Catalogue, Article 145, Violation of Access Permit Provisions, Article 147, Administrative Legal Liability for Breach of Information Reporting Obligations, or Article 148, Criminal Legal Liability for Breach of Information Reporting Obligations, hereof respectively.

Article 150: Enforcement Measures

If a foreign investor or foreign-invested enterprise fails to perform the administrative penalty decision rendered by the competent foreign investment department by the specified deadline, the competent foreign investment department may take the following measures:

(1) for failure to pay a fine that has fallen due, imposing an additional fine at the rate of 0.05% of the fine amount per day;

(2) auctioning sealed or seized property or transferring frozen deposits in accordance with the law to set off the fine; or

(3) applying to the people's court for enforcement.

Article 151: Revocation of Permits/Licences and Criminal Legal Liability

If a foreign investor or foreign-invested enterprise violates this Law, the relevant competent industry department may revoke its permit in accordance with the law, and the administration for industry and commerce may revoke its business licence in accordance with the law. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

Article 152: Legal Liability of the Working Personnel of Administrative Departments

If a member of the working personnel of the competent foreign investment department or other relevant administrative department practises favouritism by committing fraud, abuses his/her authority or is derelict in his/her duties when performing his/her duties, administrative penalties shall be imposed in accordance with the law. If a criminal offence is constituted, criminal liability shall be pursued in accordance with the law.

Part Eleven: Supplementary Provisions

Article 153: Enterprises Existing Prior to Effectiveness

The provisions hereof shall apply to foreign-invested enterprises lawfully existing prior to the entry into effect hereof, unless otherwise provided in this Part.

Article 154: Changes in Enterprises Existing Prior to Effectiveness

If a foreign-invested enterprise lawfully existing prior to the entry into effect hereof makes a change to a matter of its operations after the entry into effect hereof and such matter requires the application for an access permit as specified herein, it shall apply for an access permit.

If the increase, after the entry into effect hereof, of the investment amount of a foreign-invested enterprise lawfully existing prior to the entry into effect hereof reaches the limit specified in the restricted catalogue, an application for an access permit shall be made.

Article 155: Continued Operations under Original Conditions

A foreign-invested enterprise lawfully existing prior to the entry into effect hereof may continue to carry out its business within the scope of business and term and under the other conditions originally approved.

Article 156: Term of Operations

After the entry into effect hereof, the parties may specify the term of operations at their own discretion, except where the competent foreign investment department has set the term of operations as an access condition pursuant to relevant provisions hereof.

If the term of operations expires after the promulgation but before the entry into effect hereof, and the parties intend to continue operations, they may, after the entry into effect hereof, carry out the procedures for amendment with the administration for industry and commerce.

If the term of operations specified by the parties at their own discretion or the amended term of operations harms the lawful rights and interests of a third party, such third party may assert its rights in accordance with relevant laws and regulations.

Article 157: Change of the Organisational Form or Organisational Body of an Enterprise

A foreign-invested enterprise lawfully existing prior to the entry into effect hereof shall change its organisational form or organisational body in accordance with laws and regulations such as the Company Law, Partnerships Law and Wholly Individually-owned Enterprises Law within three years after the entry into effect hereof, but if the existing term of operations thereof expires within the three years after the entry into effect hereof and it intends to renew its term of operations, the change shall be carried out during the enterprise's existing term of operations.

The provisions on the organisational form and organisational body of an enterprise in the Sino-foreign Equity Joint Ventures Law, the Wholly Foreign-owned Enterprises Law and the Sino-foreign Cooperative Joint Ventures Law shall continue to apply until the change is completed in accordance with the preceding paragraph.

Article 158: Handling of Control by Agreement

(Please refer to the Explanation of the PRC Foreign Investment Law (Draft for Comments))

Article 159: Securing of Foreign Nationality

If a natural person with Chinese nationality obtains a foreign nationality, his/her investments in China, regardless of whether they were made before or after the entry into effect hereof, shall be foreign investments and subject to the relevant provisions hereof, unless otherwise provided by the State Council.

Article 160: Securing of Permanent Foreign Residence Status

If a natural person with Chinese nationality obtains permanent foreign residence status and relevant laws and administrative regulations provide otherwise in respect of the treatment of his/her investments in China, such provisions shall apply.

Article 161: Securing of Permanent Chinese Residence Status

If a natural person with a foreign nationality obtains permanent Chinese residence status and relevant laws and administrative regulations provide otherwise in respect of the treatment of his/her investments in China, such provisions shall apply.

Article 162: Investments by Taiwan Compatriots

This Law shall apply mutatis mutandis to the investments on the mainland by Taiwan compatriot investors, unless otherwise provided in laws and administrative regulations.

The special treatment of the mainland investments of Taiwan compatriot investors shall be separately provided for by the State Council.

Article 163: Investments by Hong Kong and Macao Compatriots and by Overseas Chinese

This Law shall apply mutatis mutandis to the investments on the mainland by Hong Kong and Macao compatriot investors and overseas Chinese, unless otherwise provided in laws and administrative regulations.

The special treatment of the mainland investments of Hong Kong and Macao compatriot investors and overseas Chinese shall be separately provided for by the State Council.

Article 164: Governing Law

Investment contracts to be performed in China and executed by foreign investors shall be governed by the law of China.

Article 165: Corresponding Measures

If any country or region takes discriminatory measures against PRC investors or their investments, the state may, depending on the actual circumstances, take corresponding measures.

Article 166: Foreign Investment in the Financial Sector

If a foreign investor invests in the financial sector, such as in banking, securities or insurance, the relevant competent finance department shall implement access permits and monitoring inspections in accordance with relevant laws and regulations.

Article 167: Denominated Currency

Foreign investment administration and statistics shall mainly be denominated in renminbi.

Article 168: Inclusion of the Number in Question

For the purposes of this Law, the terms “at least” and “up to” shall include the number in question, and the terms “exceeding”, “more than” and “less than” shall not include the number in question.

Article 169: Implementing Measures

The State Council may formulate implementing measures pursuant hereto.

Article 170: Effectiveness

This Law shall be effective as of _____________, 20__. The Sino-foreign Equity Joint Ventures Law, the Wholly Foreign-owned Enterprises Law and the Sino-foreign Cooperative Joint Ventures Law shall be repealed simultaneously.

Explanation of the PRC Foreign Investment Law (Draft for Comments)

III. Explanation to Several Issues

(3) Handling of Control by Agreement

The issue of a foreign-invested enterprise securing the control of an enterprise in China through the execution of a series of agreements has drawn wide attention. The Draft expressly specifies control by agreement as a form of foreign investment, and once this Law enters into effect, investments made by way of control by agreement shall be governed by this Law. As for investments made by way of control by agreement existing before the entry into effect of this Law, if they remain in sectors in which foreign investment is prohibited or restricted after the entry into effect hereof, theoretical circles and practice circles have the following viewpoints on how they are to be dealt with:

1. if a foreign-invested enterprise that has implemented control by agreement reports to the State Council department in charge of foreign investment that it is subject to the de facto control of a Chinese investor, it may continue to maintain its structure of control by agreement and the relevant entity may continue to carry out its business activities;

2. a foreign-invested enterprise that has implemented control by agreement should apply to the State Council department in charge of foreign investment to have it recognise the fact that the foreign-invested enterprise is subject to the de facto control of a Chinese investor; once the State Council department in charge of foreign investment recognises that it is subject to the de facto control of a Chinese investor, it may continue to maintain its structure of control by agreement and the relevant entity may continue to carry out its business activities;

3. a foreign-invested enterprise that has implemented control by agreement should apply to the State Council department in charge of foreign investment for an access permit and the State Council department in charge of foreign investment, in concert with the relevant departments, will comprehensively consider factors such as the de facto controller of the foreign-invested enterprise in rendering its decision.

We will further consider this issue on the basis of a broad gathering of the opinions of the public and put forth our proposals for dealing therewith.