In the News: Foreign Investment Review; More Entity Listings; and MSCI Removals

December 21, 2020 | BY

Vincent Chow

NDRC, MOFCOM launch new national security review for foreign investments; Trump administration adds SMIC and dozens other Chinese entities to Entity List; MSCI drops seven Chinese companies from indices following Trump Executive Order

NDRC, MOFCOM launch new national security foreign investment review

China has published new rules for national security reviews of foreign investment. On Dec. 19, the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) jointly issued the Measures for the Security Review of Foreign Investment (外商投资安全审查办法) to come into effect Jan. 18, 2021.

The review will cover foreign investment that affects or may affect national security (Article 2). The review system will be overseen and led by the NDRC and MOFCOM (Article 3). Within 15 working days from the date of a party flagging a proposed foreign investment to the authorities for review, the authorities will notify the party about whether a foreign investment review is required (Article 7). Should a review be deemed necessary, a general review will be completed within 30 working days (Article 8). Should the foreign investment be deemed to affect or may affect national security, a special review will be initiated, to last no more than 60 working days, or more under special circumstances (Article 9).

China first introduced a national security review regime for foreign investment in 2011. In the immediate years after, the review system was not widely used and only saw a handful of publicly reported cases. Its most significant recent reform came in 2019 when the NDRC took over from MOFCOM as the leading government agency for overseeing the review system. In August 2019, the first case of the newly revamped review system was publicly reported, involving Yonghui Superstores and its proposed increase in stake in a Chinese supermarket chain. That proposed deal was later scrapped following the review. The recently introduced PRC Foreign Investment Law (中华人民共和国外商投资法) stipulated that a new foreign investment review system will be established to vet foreign investments that impact or could impact national security (Article 35). The NDRC has said that foreign companies have been waiting for the new rules in order to plan their investments. The new rules cover a wide range of sectors, including foreign investment in military, energy, natural resources, agriculture, internet technology and financial services.

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