Out-Law News 1 min. read
06 Sep 2011, 11:58 am
New Chinese regulations on the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors have been introduced and include a right for regulators to investigate and even veto foreign mergers and acquisition deals that are deemed to put China's national security at risk, according to a report by China Briefing.
China restricts foreign business access to some markets by operating a strict licensing system. Many foreign investors choose to get around the system by entering into contractual agreements with local Chinese businesses in order to give them a controlling influence in the Chinese market.
The new regulations, which came into effect on 1 September, mean that foreign companies that adopt that practice could now be subject to the national security reviews, China Briefing said.
The regulations apply to foreign investors looking to obtain actual control in Chinese businesses involved in military or national defence industries, located near key and sensitive military facilities and in select other key industries including energy, transport and technology, according to China Briefing.
Major Chinese internet companies, including Baidu, the country's biggest search engine company, and Sina which operates Weibo, China's Twitter equivalent, have secured foreign investment using methods that were previously outwith the scope of the national security reviews, according to a report by the Financial Times.
Provisional rules on national security reviews were first introduced in March by the Ministry of Commerce of China, a report by People's Daily Online said at the time.
Under the new rules the Ministry of Commerce could take up to 15 days to decide if a foreign investment deal needs to go through a security review, according to China Briefing. If a national security review is to be conducted it will be done by an "inter-ministerial joint conference" within a further five days, it said.
