On December 19, 2020, the National Development and Reform Commission and the Ministry of Commerce jointly issued the Measures for the Security Review of Foreign Investment (hereinafter referred to as the "New Regulations on the Security Review of Foreign Investment") by ministerial Order No. 37. What is new in the new regulations on foreign investment security review? This article combines the practical experience of our firm in providing security trial legal services and attempts to interpret it from the perspective of practicing lawyers.

1. The security review targets have been expanded from M&A security review to the establishment of new wholly owned enterprises and new joint ventures

The 2011 Notice of the General Office of the State Council on Establishing a Security Review System for Foreign Investors' Mergers and Acquisitions of Domestic Enterprises (Guo Ban Fa [2011] No. 6, hereinafter referred to as the Old Regulations on Security Review of Foreign Investment) is aimed at foreign investors' mergers and acquisitions of domestic enterprises. The new regulations extend the entire scope of foreign investment, and the establishment of new wholly-owned enterprises and Sino-foreign joint ventures are also safe objects.

Second, the Internet and finance are included in the scope of security review for the first time

The new security review regulations include the Internet and finance in the scope of security review for the first time. Specifically, it refers to important information technologies and Internet products and services, as well as important financial services. In addition, the new security review regulations also inherit the provisions of the Trial Measures for National Security Review of Foreign Investment in Pilot Free Trade Zones, and reaffirm that the cultural field is also the scope of security review. Therefore, future foreign investment in the Internet, finance, and cultural fields, if it involves a national security review, will also fall within the scope of security review.

3. The NDRC replaced MOFCOM as the security review acceptance department

In the old security review rules, the Ministry of Commerce was the department that accepted the security review application. Announcement No. 4 of 2019 of the National Development and Reform Commission clarifies the transfer of relevant powers to the NDRC. The new safety review rules are once again confirmed. At present, the NDRC has begun to actively accept and carry out national security reviews.

IV. Miscellaneous

In addition to the above, the new safety review regulations also stipulate some distinctive contents, such as the modification of the investment plan, which will lead to the "zeroing" of the safety review schedule (if the parties modify the investment plan, the review period will be recalculated from the date when the working mechanism office receives the revised investment plan).

5. A few thoughts

1. The scope of the security trial still needs to be clarified

As we know, there is no clear list of products and services in the scope of the security review, so in practice, there is still confusion as to what products and services are "important" and what are not "important". Therefore, it is expected that the NDRC will issue further guidance on the scope of security reviews in the future.

2. Whether the security audit is declared in advance or after the fact

From the perspective of legal provisions, the current security trial procedure should be a prior declaration. Once the threshold is triggered, it should be reported in a timely manner. Trading shall be stopped during the declaration process. However, due to the above reasons, in practice, there are still a large number of transactions, which are discovered by the security review department during the transaction process or after the completion of the transaction and supplemented for declaration. Although there is no clear penalty for the security trial, the security trial organ can still fully display the teeth of the security trial through post-incident treatment.

3. Expect the transparency of security trials to be further improved

Compared with other domestic administrative review procedures and overseas security review procedures, the transparency of China's security review procedures still needs to be further improved. At present, the review authority does not seem to have published the number of past years of examinations, the proportion of security examinations passed, etc. China has only disclosed part of the situation at past WTO meetings on China's trade policy, but few people know about the relevant documents. Appropriately improving transparency is conducive to the compliance of the counterparty, and also conducive to lawyers and other intermediary organizations to provide relevant legal advice and advice to clients.

(This article is translated by software translator for reference only.)