China’s MOFCOM Clarifies Security Reviews for M&A Transactions

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Jun. 15 – On February 3, 2011, China’s State Council released the Circular on the Establishment of a Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (“Circular”). Subsequently, the Ministry of Commerce (MOFCOM) has issued the Interim Provisions of the Ministry of Commerce on Issues Related to the Implementation of the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (“Interim Provisions”), which took effect on March 5, 2011 and will remain valid until August 31, 2011.

The Interim Provisions provide that, where a foreign investor’s M&A of a domestic entity falls under the scope of an M&A security review specified in the Circular, the investor should file an application with the MOFCOM for security review. If the M&A is carried out by two or more foreign investors, they can jointly file an application or designate one of the investors to do so.

It also provides that where local commerce authorities in charge handle applications for M&A transactions that fall under the scope of a security review, but the applicants failed to apply for an M&A security review, the local authorities should temporarily refuse to accept the application, requiring the applicants to first file applications for an M&A security review, and report the relevant information to the MOFCOM.

The Interim Provisions also provide that, before filing an official application for an M&A security review, the applicant may request a consultation with the MOFCOM on the procedural issues with regards to the M&A transaction. However, the provision does not specify what the applicants need to submit in order to apply for the negotiation, and at what stage of the M&A negotiations the application for consultation can be submitted (e.g. whether some written agreement needs to be entered into among the M&A parties prior to applying for the consultation).

The Interim Provisions provide a list of documents that applicants are required to submit when applying for the M&A security review, some of the key documents are as follows:

  1. Identity certification, registration certification, or credit worthiness certification documents of the foreign investor which have been notarized or certified in accordance with the law;
  2. Identity certification document of the legal representative, or the power of attorney issued by the foreign investor and identity certification document of the authorized representative thereof;
  3. Statement on the information pertaining to the foreign investor and its associated enterprises (including its actual controller or parties acting in concert), and a statement on its relationship with the government of relevant countries;
  4. Statement on operating status of the target domestic enterprise, its articles of association, business license (photocopy), audited financial statements for the previous year, chart of its organizational structures prior to and after the M&A, and a statement on the operating status of enterprises invested by the target enterprise, and business licenses (photocopy) of such enterprises.

After the M&A is approved by the joint committee, the applicant can complete the formalities for the M&A transaction. If the committee regards the M&A to have a likely impact on national security, the applicant must adjust the transaction and revise the application documents accordingly, and reapply for the security review. However, if the M&A has already caused a great impact on national security, or will possible cause such impact, then the project will be terminated, or effective measures such as transfer of equity or assets will be undertaken to eliminate the impact of the transaction on national security.

This article was originally published on the Dezan Shira & Associates online business resources library. To view the original article, and other regulatory updates, please click here.

Dezan Shira & Associates is a boutique professional services firm providing foreign direct investment business advisory, tax, accounting, payroll and due diligence services for multinational clients in China. In particular, the firm specializes in all matters relating to mergers and acquisitions in the country. For advice on such matters, please email, visit, or download the firm’s brochure here.

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