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Brief Analysis on the Measures for the Security Review of Foreign Investments

  • Legal Development 04 February 2021 04 February 2021
  • Asia Pacific

  • Trade & Commodities

Brief Analysis on the Measures for the Security Review of Foreign Investments


Following the PRC National Security Law (2015) and the PRC Foreign Investment Law (2020), a set of new measures has been introduced by the Chinese authorities recently: the National Development and Reform Commission (“NDRC”) and the Ministry of Commerce (“MOFCOM”) promulgated the Decree No.37 of the NDRC and the MOFCOM on Measures for the Security Review of Foreign Investments (the “Measures”) on 19 December 2020. The Measures became effective on 18 January 2021.

Scope of Security Review

Under the Measures, foreign investment means investment activities carried out by foreign investors directly or indirectly within the territory of the PRC, including the following instances:

i. where foreign investors invest, solely or jointly with other investors, in new projects or establishing enterprises in China;

ii. where foreign investors acquire equity or assets of domestic enterprises by way of merger and acquisition; or

iii. where foreign investors make investments in China in any other form.

Foreign investments falling within the following circumstances need to be declared to and reviewed by the office of the working mechanism, (the “Office”), jointly led by NDRC and MOFCOM:

i. investments in military industry, military industrial supporting and other fields relating to the security of national defence, and investments in areas surrounding military facilities and military industry facilities;

ii. investments in important agricultural products, important energy and resources, important equipment manufacturing, important infrastructure, important transport services, important cultural products and services, important information technology and Internet products and services, important financial services, key  technologies and other important areas relating to national security, and obtaining the actual controlling stake in the investee enterprise. Actual controlling stake means one of the following circumstances:

  • where the foreign investor holds more than 50% of the equity of an enterprise;
  • where the foreign investor holds less than 50% of the equity of an enterprise, but the voting rights held by it can have significant impact on the resolutions of the board of directors, the board of shareholders or the general meeting of shareholders; and
  • other circumstances where the foreign investor may have significant impact on the enterprise’s business decision-making, human resources, finance, technology etc.

Security Review Procedure

The review comprises three levels:

Level one review: Before making the foreign investment, an investor makes its declaration application to the Office. The Office will reach a preliminary decision on whether the foreign investment declared should be subject to security review (general and/or special review) within 15 working days from the date of receipt of the declaration materials. The parties concerned can only make the foreign investment if the Office decides that security review is not required.

Level two review: If the Office determines a general review is required, it will proceed with the general review and complete such review within 30 working days from the date of decision to conduct security review. Under general review, the Office will decide to conclude the security review if it is deemed that the foreign investment will not have an impact on national security. On the other hand, if the Office deems the foreign investment to have an impact on national security, it will procced to conduct the special review.

Level three review: Special review should be conducted and completed within 60 working days from the date of initiation, but could be extended under special circumstances. If, after conducting special review, it is decided that the foreign investment does not have an impact on national security, the security review will be concluded. Where the foreign investment affects national security, the investment will be prohibited. A decision to conclude the security review may be made subject to written commitments from the parties to the foreign investments to implement certain specified conditions imposed by the Office to help eliminate the national security risks identified.

Failure to comply with the Measures

For foreign investments falling in the scope of security review, if the investors fail to make declaration in accordance with the Measures, the Office may also request the investors to make a declaration.

If the Office determines that a foreign investment affects national security but the investment has already been made, the investors will be required to revoke the investment and dispose the relevant shares or assets. Failure to comply with the Measures will also impact the credit record of a party to the relevant foreign investment in the credit information system of the State. Such parties may also face disciplinary measures imposed in accordance with the relevant provisions of the State.


The Measures are one of many recent implementations to safeguard national security in China and its developments should be closely monitored. At this juncture, the broad brush approach of the Measures on whether a foreign investment would be deemed to impact national security gives rise to uncertainty and speculations among hopeful investors.  It may take some time for the market to understand the practical impact the Measures may have on foreign direct investments to be concluded after 18 January 2021.  We will continue to follow updates on the Measures and how they will be applied in practice. If you have any further queries, please feel free to contact us.   


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