China's New National Security Review Rules: How Will it Affect Foreign Investments

While China has endeavored to streamline foreign investment approval through pre-establishment national treatment plus a negative list system under the framework of the PRC Foreign Investment Law (中华人民共和国外商投资法), there has been an increased emphasis on safeguarding national security, a trend also gaining more prominence in other jurisdictions such as the U.S. (through the review of the Committee on Foreign Investment in the United States ) and the EU (via an foreign direct investment screening).  As part of these efforts, on Dec. 19, 2020, China's National Development and Reform Commission (the NDRC) and Ministry of Commerce (MOFCOM) published the Measures for the Security Review of Foreign Investments (the FISR Measures) (外商投资安全审查办法), becoming effective as of Jan. 18, 2021.

The FISR Measures are not the first laws in China to address national security concerns in foreign investments, but it is the first ministerial regulation on this topic

The FISR Measures are not the first laws in China to address national security concerns in foreign investments, but it is the first ministerial regulation on this topic.  The FISR Measures are preceded by the Circular on the Establishment of a System for Security Review of Acquisition of Domestic Enterprises by Foreign Investors (the Circular) (关于建立外国投资者并购境内企业安全审查制度的通知), published by the General Office of State Council in 2011, and the Trial Measures for the National Security Review of Foreign Investments in Pilot Free Trade Zones (the Free Trade Zone Measures) (自由贸易试验区外商投资国家安全审查试行办法), also by the General Office of State Council in 2015.  Although not expressly provided, it is understood that the FISR Measures supersede the Circular and all other regulations covering the same topic, and will operate as the primary regulation for national security reviews on foreign investments in China.  As a result, investors are advised to consider national security review requirements for plans to establish their presence in China, especially in certain key sectors or special areas.  Some highlights are discussed below: