The Ministry of Commerce (MOFCOM) promulgated the Provisions on Implementing the Security Review System for Mergers and Acquisitions (M&As) of Domestic Enterprises by Foreign Investors at the end of August 2011. The regulations took effect on 1 September.

Under the new rules, where the M&A of a domestic enterprise by a foreign investor is subject to M&A security review as specified in the Notice of the General Office of the State Council on Establishment of A Security Review System for M&As of Domestic Enterprises by Foreign Investors, the foreign investor shall file an application for M&A security review with MOFCOM. Where two or more foreign investors jointly make an M&A, an application for M&A security review may be filed with MOFCOM by all the foreign investors, or by one foreign investor designated by all the investors.

Where a foreign investor merges with or acquires a domestic enterprise and the departments concerned under the State Council, national industry associations, enterprises in the same industry, or upstream or downstream enterprises believe that a security review needs to be conducted, they may make proposals for an M&A security review to MOFCOM and submit explanations with regard to the circumstances in question. MOFCOM may request the stakeholders to submit relevant explanations. If the case falls within the scope of security review, MOFCOM shall submit its recommendations to a ministerial panel within five working days. If the ministerial panel believes that security review is indeed necessary, MOFCOM shall, based on the decision of the ministerial panel, require the foreign investor to file an application for M&A security review pursuant to these Provisions.

With regard to M&A of a domestic enterprise by a foreign investor, the authorities should judge whether the transaction is subject to security review based on the essential content and actual impact of the transaction. Foreign investors shall not avoid M&A security review through any means, including but not limited to commissioned shareholdings, trusts, multi-level reinvestments, leases, loans, contractual control, and overseas transactions.