1、 Regarding:Foreign Investment Compliance Guidelines Version：Version 1 Date：February 2020 Foreign Investment Compliance Guidelines（2020.02 Version 1）GLO 环球律师事务所环球律师事务所|LexisNexis 律商联讯律商联讯 Exclusive Partnership 2 Disclaimer This report and its contents do not represent the legal opinions of Global Law

2、 Office on related issues.At the same time,we do not guarantee that the relevant content will be updated after the stated date.We do not recommend that the reader make any decision solely on the basis of all or part of the content of this report,and therefore the consequences will be left to the act

3、or.If you require legal or other expert advice,we recommend that you seek professional help from a qualified professional.Contact Us If you want to know more about the contents of this report,you can contact the following partners of our law firm(these partners are the partners who wrote this report

4、,sorted in the order of the chapters of this report),or you can contact other partners and lawyers of our law firm：LIU JINRONG 刘劲容刘劲容 LIU CHENGWEI 刘成伟刘成伟 REN QING 任清任清 LIU ZHAN 刘展刘展 LIU SHUJUN 刘淑珺刘淑珺 KANG QIUNING 康秋宁康秋宁 SUN HAISHAN 孙海珊孙海珊 GUO SHIFANG 郭仕芳郭仕芳 3 ZHANG XIN 张昕张昕 ZHU LI 朱莉朱莉 LI ZHANKE 李占科

5、李占科 4 Foreign Investment Compliance Guidelines（2020.02 Version 1）GLO 环球律师事务所环球律师事务所|LexisNexis 律商联讯律商联讯 PART A NEW ERA OF FOREIGN INVESTMENT REGULATION.5 CHAPTER I NEW FOREIGN INVESTMENT REGULATORY FRAMEWORK.5 CHAPTER II ADJUSTMENTS AND TRANSITIONAL ARRANGEMENTS WITH RESPECT TO EXISTING FIES.11 CHAP

6、TER III ESTABLISHMENT,CHANGE AND DEREGISTRATION OF FOREIGN INVESTED ENTERPRISES UNDER THE NEW REGULATORY FRAMEWORK.14 PART B M&A,REORGANIZATION BY FOREIGN INVESTORS.28 CHAPTER IV M&A BY FOREIGN INVESTORS:THE M&A RULES,AFFILIATED M&A AND CROSS-BORDER EXCHANGE OF EQUITY INTEREST.28 CHAPTER V STRATEGIC

7、 INVESTMENT IN A-SHARE LISTED COMPANIES BY FOREIGN INVESTORS.36 CHAPTER VI REINVESTMENT BY FOREIGN-INVESTED ENTERPRISES IN CHINA.44 CHAPTER VII MERGER AND DIVISION OF FOREIGN-INVESTED ENTERPRISES.49 PART C SPECIALIZED ANALYSIS ON FOREIGN INVESTMENT.57 CHAPTER VIII NEW POLICIES INFLUENCE ON VIE AND R

8、ED CHIP REORGANIZATION.57 CHAPTER IX FOREIGN-INVESTED FUNDS.61 CHAPTER X CROSS-BORDER MOVEMENTS-FOREIGN CAPITAL,FOREIGN DEBTS AND CROSS-BORDER SECURITY.73 CHAPTER XI CROSS-BORDER TRANSFER,LICENSING AND PROTECTION OF IPR.81 5 Part A New Era of Foreign Investment Regulation Chapter I New Foreign Inves

9、tment Regulatory Framework Liu Jinrong/Liu Chengwei/Ren Qing 1.1.Foreign Investment Law Takes Effect,Three Laws on Foreign Investment Abolished Since January 1,2020,the Foreign Investment Law of the Peoples Republic of China(Presidential Decree No.26,issued on March 15,2019)(FIL)and the Implementati

10、on Regulation for the Foreign Investment Law of the Peoples Republic of China(State Council Decree No.723,issued on December 26,2019)(the Implementing Regulations of the FIL)came into effect.The three laws on foreign investment were abolished simultaneously from the date when the FIL came into effec

11、t.According to Article 42 of the FIL,the Law of the Peoples Republic of China on Sino-foreign Joint Ventures,the Law of the Peoples Republic of China on Foreign-invested Enterprises,and the Law of the Peoples Republic of China on Sino-foreign Cooperative Enterprises(collectively referred to as the T

12、hree Foreign Investment Laws)were simultaneously abolished on January 1,2020.According to Article 49 of the FIL,the Regulations of the Peoples Republic of China on the Implementation of the Law on Sino-foreign Joint Ventures,the Interim Provisions on the Contract Term of Sino-foreign Equity Joint Ve

13、ntures,the Detailed Rules for the Implementation of the Law of the Peoples Republic of China on Foreign-invested Enterprises,and the Detailed Rules for the Implementation of the Law of the Peoples Republic of China on Sino-foreign Cooperative Enterprises were simultaneously abolished on January 1,20

14、20.Since then,the three pillars era of foreign supervision has come to an end.After entering the era of FIL,for foreign-invested enterprises,whether it is a Wholly Foreign-Owned Enterprise(WFOE)or a Sino-Foreign Equity Joint Venture(EJV)or a Sino-Foreign Cooperative Joint Venture(CJV)(collectively r

15、eferred to as FIE),the form of organization and institutional framework will be the same as those of domestic-funded enterprises,which will be applicable to the Company Law of the Peoples Republic of China(Company Law)or the Partnership Enterprise Law of the Peoples Republic of China(Partnership Ent

16、erprise Law)and other related laws and regulations,while the negative list management system will be implemented for its industry access or business operations.For those not involved in the negative list,it will be treated the same as domestic enterprises without imposing any additional restrictions

17、 or controls and fully enjoy full national treatment.1.2.Fully Entered into a New Era of Pre-entry National Treatment Plus a Negative List Management With the formal entry into force of the FIL and the Implementing Regulations of the FIL,foreign investment supervision has fully entered the era of pr

18、e-entry national treatment plus a negative list management.6 According to Article 4 of the FIL,the so-called pre-entry national treatment refers to the treatment given to foreign investors and their investment at the stage of investment admission no less than that to domestic investors and their inv

19、estments.The manifestation of the measures is that the competent department of commerce canceled the approval and filing system for the establishment and change of FIE.The establishment of FIE is the same as the establishment of domestic-funded enterprises and the Company Law or the Partnership Ente

20、rprise Law is applicable.As a major achievement of the reform of“decentralization,management and services”in the field of foreign investment,the commercial department,together with the market supervision and management department,have established a foreign investment information reporting system in

21、accordance with the requirements of the new foreign investment legal system.In addition,there will no longer be any additional procedures for the approval or filing of foreign investment access by the commercial department.(See Chapter III below for more analysis)On the other hand,another important

22、component of the new foreign investment legal system is negative list management.According to Article 4 of the FIL,the so-called negative list management refers to the special management measures that are adopted for the admission of foreign investment in specific areas.As of now,the latest version

23、of the negative list is the Special Administrative Measures(Negative List)for the Access of Foreign Investment(2019)jointly issued by the National Development and Reform Commission(NDRC)and the Ministry of Commerce of the Peoples Republic of China(MOFCOM)on June 30,2019 and implemented on July 30,20

24、19(Order No.25 of the MOFCOM and the NDRC,Negative List 2019).There are a total of 40 areas listed in the Negative List 2019 involving special management measures for foreign investment.It is worth noting that,in addition to the negative list of specific management measures applicable on an industry

25、-by-industry basis,the Negative List 2019 specifically refers to a matter that should be subject to special management on the basis of type of transaction,i.e.,affiliated mergers and acquisitions.According to item 5 of the statement part of Negative List 2019,if a domestic company,enterprise or natu

26、ral person merges a domestic company with which it is affiliated with a company that is legally established or controlled abroad and involves a foreign investment project or the establishment or alteration of an enterprise,it shall be handled in compliance with related existing provisions.(See Chapt

27、er IV below for more analysis regarding affiliated mergers and acquisitions)In addition to the national version of the negative list,the NDRC and the MOFCOM also updated the negative list applicable to the free trade zone on June 30,2019 special management measures for foreign investment access in t

28、he pilot free trade zone(negative list)(version 2019)(Decree No.26 of the NDRC and the MOFCOM,FTA Negative List 2019).In particular,it is worth mentioning that although the approval and filing procedures of foreign investment access by competent commercial departments is no longer implemented and ha

29、s been replaced by the new foreign investment information reporting system,the project approval and filing procedures of the competent development and reform department is still applicable.Article 36 of the Implementing Regulations of the FIL clearly stipulates that if foreign investment needs to be

30、 approved or filed for investment projects,it shall be implemented in accordance with relevant state regulations.However,it should be noted that,unlike the approval and filing procedures for foreign investment by competent commerce department that have been replaced,the approval and filing procedure

31、s of the competent development and reform department for investment projects are not specific to foreign investment,but are also applicable to domestic-funded enterprise.In this regard,the competent development and reform departments review does not actually involve the issue of foreign investment a

32、ccess,but rather the relevant 7 procedures applicable to all enterprises,including domestic and foreign enterprises.The approval and filing of investment projects by the competent development and reform department mainly involves the following rules:Regulations on the Administration of the Approval

33、and Filing of Enterprise Investment Projects promulgated by the State Council in November 2016 and effective from February 1,2017(Order No.673 of the State Council),List of Government-approved Investment Projects(2016 edition)issued by the State Council in December 2016(Guofa 2016 No.72),and the Adm

34、inistrative Measures on the Approval and Filing of Enterprise Investment Projects promulgated by the NDRC in March 2017 and effective from April 8,2017(Order No.2 of the NDRC).In addition to the competent development and reform department s review of investment projects,foreign investment may also i

35、nvolve the approval of competent industry authorities,such as investments in the financial industry.Of course,such industry approval or filing requirements are not only for foreign investment,but are applicable to domestic and foreign enterprises.According to Article 35 of the Implementing Regulatio

36、ns of the FIL,where a foreign investor invests in an industry or field that requires a license in accordance with the law,unless otherwise provided by laws and administrative regulations,the relevant competent authority responsible for implementing the license shall review the foreign investors lice

37、nse application in accordance with conditions and procedures consistent with domestic investment,and shall not set discriminatory requirements on foreign investors in terms of licensing conditions,application materials,review procedures,review time limits,etc.In this regard,some existing foreign inv

38、estment management measures targeted at specific fields or industries,such as the Regulations on the Administration of Foreign-invested Telecommunications Enterprises,the Interim Measures on the Management of Sino-foreign Joint Ventures and Cooperative Medical Institutions,the Regulations on Sino-fo

39、reign Cooperation in Running Schools,Chinese Foreign Banking Supervisory Rules,Regulations on the Administration of Foreign Insurance Companies,and so on,are facing the fate that needs to be adjusted,revised or even abolished to truly implement the principle of equal national treatment of domestic a

40、nd foreign investment required by the FIL and the Implementing Regulations of the FIL.In short,under the framework of the new foreign investment management system,the state grants national treatment to foreign investment that is not on the negative list.For the supervision of foreign investment,the

41、new management system can be summarized as the registration of companies/enterprises under the market supervision and management department+the foreign investment information report to the commercial department+the approval or filing by the development and reform department or the competent departme

42、nt of the industry(if applicable).Finally,it should be mentioned that in addition to the negative list management,the state still continues to encourage and guide policies on the direction of foreign investment.According to Article 11 of the Implementing Regulations of the FIL,in accordance with the

43、 needs of the national economy and social development,the state shall formulate a catalogue of industries that encourage foreign investment,setting out specific industries,fields and regions that encourage and guide foreign investors to invest.As of now,the latest catalogue related to foreign invest

44、ment encouragement industries is the Catalogue for Encouraging Foreign Investment(2019 Edition)jointly issued by the NDRC and the MOFCOM on June 30,2019 and effective on July 30,2019(Order No.27 of the NDRC and the MOFCOM,Encouraged Catalogue 2019).In addition,the NDRC also issued an updated version

45、 of the Industrial Structure Adjustment Guidance Catalogue(2019 Edition)in October 2019(Fagai Difang Gui 2019 No.1683,Structure Adjustment Catalogue 2019).The Structure Adjustment Catalogue 2019 came into effect on January 1,2020,and will also apply to domestic and foreign-funded enterprises.It list

46、s 8 encouraging and restricted projects,which will have important reference significance when the development and reform department approves or puts on record the investment projects.1.3.Former Supporting Rules of the Three Laws on Foreign Investment Abolished After the implementation of the FIL and

47、 the Implementing Regulations of the FIL,a certain number of previous special provisions on foreign investment may face the fate of being adjusted or abolished.For example,in Article 49 of the FIL,in addition to simultaneous abolishment of the implementation regulations for Three Foreign Investment

48、Laws,the Interim Provisions on the Contract Term of Sino-foreign Equity Joint Ventures are also explicitly repealed,which was promulgated in October 1990 by the Ministry of Foreign Trade and Economic Cooperation(“MOFTEC”,which function was inherited by the MOFCOM).As for the aforesaid provisions,con

49、sidering that they were approved by the State Council in the legislative process,the State Council will also repeal them when the Implementing Regulations of the FIL came into force.On the other hand,most of the relevant supporting rules applicable to foreign investment are formulated by the MOFCOM

50、or its former Ministry the MOFTEC,except for some industry rules related to negative list management(such as foreign investment in telecommunications,etc.)and foreign exchange regulations.As for the adjustment or abolition of supporting rules after January 1,2020,it needs to be clarified by the MOFC

51、OM or other competent departments in combination with the progress of combing relevant rules gradually.For example,6 departmental regulations have been abolished by the decision of the MOFCOM on Abolition of Some Regulations(the MOFCOM Order No.3,issued on December 28,2019),and 56 regulatory documen

52、ts have been repealed by the notice from the MOFCOM on Repealing Some Regulatory Documents(the MOFCOM Notice No.59,issued on December 25,2019).The foresaid repealed supporting rules may involve the following aspects:1.3.1 FIE Organizational Form and Corporate Governance Structures Organizational for

53、m:leasing equipment capital contribution,operating period,adjustment of aggregate investment and registered capital and application for extension filed.Corporate governance structures:directors not attending the board of directors meetings.Sino-foreign co-operative enterprises:the Notice on Issuing

54、the implementation of Certain Articles of the Detailed Rules for the Implementation of the Law of the Peoples Republic of China on Sino-foreign Cooperative Enterprises.Foreign investment companies limited by shares:the Provisional Regulations on Several Issues concerning the Establishment of Foreign

55、 Investment Companies Limited by Shares and the Letter of General Office of MOFCOM on Issues concerning the Transformation of Sino-foreign Equity Joint Equity Ventures and Other Types of Enterprises into Foreign Investment Companies Limited by Shares.Investment FIE:investment companies and venture c

56、apital.FIE liquidation:termination of liquidation,specific issues of liquidation as well as dissolution and liquidation.A series of notices and announcements on the adjustment of foreign investment review 9 permissions over the years.1.3.2 Regulations Related to Foreign Investment and M&A Stock equi

57、ty alternation:the Several Provisions on Changes in Equity Interest of Investors in Foreign-invested Enterprises and the Reply of the General Office of the MOFCOM on the Relevant Issues Concerning Stock Equity Alternation of Foreign-invested Enterprises.Capital contribution in the form of equity:the

58、 Interim Provisions of MOFCOM on Capital Contribution in the Form of Equity by Foreign Investment Enterprises.Mortgage:the Reply of the MOFTEC on the foreign mortgage of the property or rights and interests of foreign Investment enterprises.Investment in listed companies:the Opinions on Issues relat

59、ing to Foreign-invested Listed Companies,Issues relating to Transfer of State-owned Shares and Legal Person Shares of Listed Companies to Foreign Investors,the Notice on Relevant Issues Concerning Application Procedures for Transfer of State-owned Shares of Listed Companies to Foreign Investors and

60、Enterprises with Foreign Investment and the Notice of the MOFCOM on Conversion of Non-Listed Foreign Investment Shares of Foreign-Invested Joint Stock Companies into Tradable B Shares.1.3.3 Specific Industry Industry of technology of telecommunications:online sales and vending machines.Industry of r

61、eal estate:regulations on filing of foreign investment companies.Industry of commercial circulation:logistics business,commercial business and import licenses.Industry of finance:financial assets,disposal of non-performing assets,financing guarantees,commercial Factoring and finance lease.Industry o

62、f energy and infrastructure:mineral exploration and foreign investment by means of BOT.Miscellaneous:overcapacity,for-profit service for the elderly and funeral service.1.4.Adjustment of Supporting Rules or Formulation of New Rules Under the FIL In general,the FIL and the Implementing Regulations of

63、 the FIL belong to the principle or programmatic provisions,and the implementation of specific systems requires the formulation of corresponding supporting rules.In addition,as mentioned above,in the case that a large number of former supporting rules have been abolished,the connection and implement

64、ation of relevant policies need further policy modification or formulation.On the one hand,with regard to the new foreign investment information reporting system mentioned above,the MOFCOM jointly issued the Measures on Reporting of Foreign Investment Information(MOFCOM,State Administration for Mark

65、et Regulation Order No.2019 No.2)(“Measures on Reporting”).The Measures on Reporting came into force on January 1,2020,and replace the Provisional Measures on Administration of Filing for Establishment and Change of Foreign Investment Enterprises.On December 31,2019,the 10 MOFCOM further issued Anno

66、uncement of the MOFCOM on Matters Relating to Reporting of Foreign Investment Information(MOFCOM Announcement 2019 No.62),which clarified relevant matters of information report system,and issued the report forms of foreign investment initial report and change report,foreign investment annual report

67、and other declaration documents.On the other hand,it remains to be seen how existing supporting rules will be adjusted or whether these will be abolished.For example,a large number of provisions have been repealed as mentioned in Section 1.3 above,but the author also notes that the following relevan

68、t rules on foreign M&A are not listed:the Provisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors,the Interim Provisions on Investment Inside China by Foreign Investment Enterprises,the Provisions on Merger and Division of Foreign Investment Enterprises as well as the Admin

69、istrative Measures on Strategic Investment in Listed Companies by Foreign Investors.Some of the above supporting rules may be in the process of further adjustment and revision in accordance with the latest provisions of the FIL and the Implementing Regulations of the FIL,while others may be abolishe

70、d when they are still in the process of countersignature or consultation among the relevant departments.Further observation is needed.11 Chapter II Adjustments and Transitional Arrangements with respect to Existing FIEs Liu Zhan 2.1.Requirements during the Transition Period and Non-compliance Conseq

71、uences With the Foreign Investment Law(FIL)taking effect on January 1,2020,the three laws on foreign investment were also abolished.Per article 42 of the FIL and article 44 of the Implementing Regulations of the FIL,after“the unification of three laws into one”,the“organizational form and corporate

72、governance structure”of FIEs shall be governed by the Company Law,the Partnership Enterprise Law,and other relevant laws and regulations that govern the domestic enterprises.As to the existing FIEs,the FIL grants a five-year transition period from the effectiveness date of the FIL for such existing

73、FIEs to adjust their organizational form and corporate governance structures to gradually comply with the Company Law or Partnership Enterprise Law,as applicable.During the transition period,the existing FIEs may keep their original organizational form and corporate governance structure.Per article

74、44 of the Implementing Regulations of the FIL,after 2025,for the existing FIEs that have not completed the legally required change procedures,the market regulation authorities will refuse to process the applications for any other registration matters of such FIEs,and will put on public notice of suc

75、h non-compliance.After the transition period ends,i.e.,from January 1,2025,the existing FIEs shall operate in accordance with the principle of same treatment to domestic and foreign investment,with their operating by-laws such as internal governance structure,rules of procedure,and voting mechanisms

76、 fully unified with those applicable to domestic enterprises.The laws will cease to be segregated based on the source of the capital.The shareholders may negotiate,formulate and implement various rights protection mechanisms and rules in a more flexible way.Notwithstanding the foregoing,as to the ex

77、isting FIEs with their articles of association or joint venture contracts including the equity interest transfer method,dividends distribution method,residual assets distribution method not in line with the Company Law,article 46 of the Implementing Regulations of the FIL,in the spirit of freedom of

78、 contract,allows such existing FIEs to operate with respect to such matters based on the original agreement,provided that their organization form and corporate governance structure are adjusted per the law.2.2.Adjustments Requirements for Corporate Governance by Existing FIEs For the existing FIEs i

79、n the form of WFOEs,except a limited number of WFOEs formed without legal person status,the majority of the WFOEs have been established as limited liability companies,with their shareholders meeting being their highest authority in compliance with the Company Law.However,the FIL will mostly affect t

80、hose existing EJVs and CJVs.In the following,we 12 will first take EJVs as an example to discuss the adjustment requirements for their corporate governance upon the implementation of the FIL:2.2.1 Highest Authority Adjustment For an EJV,the fundamental change required is the change to its highest au

81、thority.The previous biggest feature of an EJV in its corporate governance is that the board of directors is the highest authority deciding all major matters of the company.With the abolishment of three laws on foreign investment,EJVs must establish shareholders(general)meetings to inherit the power

82、s from their board of directors.The responsibilities and powers of the shareholders meeting and the board of directors will be assigned in accordance with the Company Law.With this change,EJVs will establish a three-tier corporate governance structure,i.e.,shareholders meeting-board of directors exe

83、cutive,the same as applicable to domestic companies.Such change to the highest authority will trigger a series of adjustment requirements:a)Adjustment to the appointment and removal methods of directors.The appointment and removal of directors is adjusted from being determined through negotiations b

84、y the EJV shareholders to the EJV by referencing their respective capital contribution ratios to being determined by the shareholders meeting.b)Adjustment to the term of directors.The term of directors of an EJV is changed from a fixed term of four years to a term of no more than three years as spec

85、ified under the Company Law.c)Adjustment to the quorum requirement for board meetings.Under the EJV Law,the quorum for a board meeting is two-thirds.After the change of the companys highest authority to the shareholders meeting,the quorum requirement of board meetings can be freely agreed by the sha

86、reholders in the companys articles of association.The aforementioned adjustments will undoubtedly bring greater flexibility to the existing FIEs corporate governance.On one hand,the unified administration of both domestic and foreign investment ends the previous dual-track system,thus improving the

87、management visibility of the existing FIEs.On the other hand,the three-tier corporate governance structure will bring the mechanism of check and balance into the existing FIEs.2.2.2 Adjustment to Voting Mechanism for Statutorily Reserved Matters After the implementation of the FIL,the statutorily re

88、served matters(i.e.,amendment to the companys articles of association,increase or decrease of the registered capital,merger,division,dissolution,and change to the companys form)will no longer be subject to unanimous approval of the board of directors,but will be subject to approval of shareholders r

89、epresenting two-thirds or more of the voting rights.This adjustment would help avoid corporate deadlock;however,if a shareholder has less than one third of the equity interest in the EJV,such shareholder would no 13 longer have veto right with respect to those aforementioned statutorily reserved mat

90、ters.2.2.3 Adjustment to Equity Transfer Restrictions Pursuant to the EJV Law and its Implementing Regulations,when transferring all or part of its equity to a third party,a shareholder must obtain consent from all the non-transferring shareholders.With the abolishment of the three laws on foreign i

91、nvestment,equity transfer shall be governed by article 71 of the Company Law,which only requires the transferring shareholding to obtain consent from more than half of the non-transferring shareholders.In addition,the Company Law grants the company freedom and powers to formulate different provision

92、s on equity transfer in its articles of association.2.3.Special Matters with respect to CJVs For the existing CJVs with legal person status,similar to the EJVs mentioned above,the highest authority of these CJVs should be adjusted from the board of directors or joint management committee to the shar

93、eholders meeting.The term of the directors or members of the joint management committee is already consistent with the Company Law and therefore does not entail adjustment.The appointment and removal of directors should be adjusted from being determined by the parties to the cooperation to being det

94、ermined by the shareholders meeting.The adjustment of the quorum for board meetings is the same as that to the EJVs,i.e.,to be governed by the articles of association.Besides,the adjustments to the voting mechanism for statutorily reserved matters and equity transfer restrictions are the same applic

95、able to the EJVs.For the exiting FIEs without legal person status(mainly CJVs),the FIL and its Implementing Regulations do not include specific provisions addressing the organizational form adjustment requirements.Our understanding is that,after the implementation of the FIL,the organizational form

96、of all FIEs shall be subject to the Company Law or the Partnership Enterprise Law.Therefore,the exiting FIEs without legal person status will also be subject to the adjustments to organizational form.These existing FIEs may choose to restructure themselves into partnerships,limited liability compani

97、es or companies limited by shares in accordance with the relevant laws during the transition period.After such adjustments,their organizational structure and operation by-laws shall comply with the Company Law,Partnership Enterprise Law,or other applicable laws and regulations.2.4.Summary In summary

98、,the three laws on foreign investment and the Company Law have substantive differences with respect to corporate governance provisions.Since the seat allocation of the highest authority and voting mechanism of the exiting FIEs might not fully comply with the provisions under the Company Law,it is fo

99、reseeable that the shareholders will likely start a new round of negotiations on such terms as separation of powers and corporate governance,in conjunction with adjusting the powers and responsibilities of the shareholders meeting and the board of directors,in order to amend the articles of associat

100、ion,joint venture contracts,cooperative contracts or shareholders agreement in accordance with the Company Law.14 Chapter III Establishment,change and deregistration of foreign invested enterprises under the new regulatory framework Kang Qiuning/Liu Shujun 3.1.Procedure:Establishment,Change and Dere

101、gistration of FIE under the New Foreign Investment Policy and the Negative List Before the Foreign Investment Law comes into force,the administrative system for foreign investment of China has changed from case-by-case examination and approval to negative list management and record-filing nationwide

102、,which is marked by the promulgation of the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign Invested Enterprises in October 2016.In other words,the examination and approval system shall still apply to the establishment and change of foreign invested e

103、nterprises(hereinafter referred to as the FIEs)which are subject to special administrative measures for foreign investment access,and the record-filing system shall apply to the FIEs which are not subject to special administrative measures for foreign investment access.Following such significant cha

104、nges(hereinafter referred to as the Foreign Investment 2.0 Era),the procedures for the establishment,change,and deregistration of FIEs had been significantly simplified.However,the relationship among all the regulatory lines involved in foreign investment are still unclear or contradictory.Table 1:M

105、ajor Supervision Procedures for the Establishment and Change of FIEs in 2.0 Era Generally Applicable Supervisory Procedures Competent Authorities Major Responsibilities Project Management Competent Investment Authorities (NDRC)Approval or Filing of Foreign Investment Projects Based on the Administra

106、tive Measures on Approval and Filing for Foreign Investment Projects Foreign Investment Access Competent Commerce Departments Based on the Special Administrative Measures for Foreign Investment Access(Negative List),case-by-case examination and approval shall be carried out for establishment and cha

107、nge of FIEs which are involved in the Negative List,and establishment and change of FIEs which are not included in the 15 Negative List shall be subject to filing administration.Industry Access Competent Industrial Authorities Examination of qualifications of FIEs based on industry access requiremen

108、ts,issuance of the relevant industry permits Enterprise Registration Administrative department for market regulation(formerly known as administrative department for industry and commerce)Processing of registration and filing for establishment and change of FIEs Declaration of the Concentration of Un

109、dertakings and National Security Review After the implementation of the Foreign Investment Law on 1 January 2020,principle of national treatment and same treatment to domestic and foreign investment will replace governmental approval system in terms of the foreign investment administration in China,

110、and the foreign investment administrative system in China will be further fundamentally changed from negative list administration and filing to pre-establishment national treatment plus negative list administration(Article 4 of the Foreign Investment Law).Based on the Implementation Regulations for

111、the Foreign Investment Law and the Implementation Regulations for the Foreign Investment Law(hereinafter referred to as the Implementation Regulations)and the new provisions implemented synchronously below,on the basis of sorting out the new system for administration of foreign investments,taking in

112、to account the main changes in establishment,change and deregistration procedures of FIEs following the implementation of the new law,this Chapter will highlight procedural matters which foreign investors and FIEs may concern.Interpretations of the Supreme Peoples Court on Several Issues Relating to

113、 Application of the Foreign Investment Law of the Peoples Republic of China(Fa Shi 2019 No.20,promulgated on 26 December 2019,and implemented with effect from 1 January 2020)Notice on Implementation of the Foreign Investment Law and Registration of Foreign Invested Enterprises(Guo Shi Jian Zhu 2019

114、No.247,promulgated on 28 December 2019,implemented on 1 January 2020,hereinafter referred to as the Notice on Registration)Measures on Foreign Investment Information Reporting(Ministry of Commerce and State Administration for Market Regulation Order 2019 No.2,promulgated on 30 December 2019 and impl

115、emented with effect from 1 January 2020)16 Announcement on Issues concerning Foreign Investment Information Reporting(Ministry of Commerce Announcement 2019 No.62,promulgated on 31 December 2019 and implemented with effect from 1 January 2020)3.2.Reshaping the Foreign Investment Regulatory System Ba

116、sed on the institutional and principled requirements of pre-establishment national treatment plus negative list management and same treatment to domestic and foreign investments,the Foreign Investment Law and its Implementation Regulations have reshaped the regulatory system for foreign investments

117、in China.In the Foreign Investment Law era,from the perspective of procedures for establishment,change and deregistration of FIEs,the main functions of investment administrative authorities,commerce administrative authorities and other authorities(such as industry administrative authorities,market r

118、egulation authorities)may be briefly sorted out pursuant to the provisions of the Foreign Investment Law and its Implementation Regulations as follows:Table 2:Division of Functions of Major FIE Regulatory Authorities Under the Foreign Investment Law Department Major Functions and Relevant Provisions

119、 Competent Investment Authorities Joint Formulation and Promulgation of the Negative List for Foreign Investment Access(Article 4 of the Implementation Regulations).Joint Formulation and Promulgation of the Catalogue for the Guidance of Foreign Investment Industries(Article 11 of the Implementation

120、Regulations).Approval and Filing of Foreign Investment Projects(Article 29 of the Foreign Investment Law and Article 36 of the Implementing Regulations).Competent Commerce Departments Joint Formulation and Promulgation of the Negative List for Foreign Investment Access(Article 4 of the Implementatio

121、n Regulations).Joint Formulation and Promulgation of the Catalogue for the Guidance of Foreign Investment Industries(Article 11 of the Implementation Regulations).Establishment,coordination and implementation of the working mechanism for complaints from FIEs(Article 29 of the Implementation Regulati

122、ons).Authority to Receive,Management and Punish Foreign Investment Information Reports(Articles 34 and 37 of the Foreign Investment Law,Article 38 and Article 39 of the Implementation Regulations).17 Competent Industrial Authorities Monitoring the implementation of the Negative List(Article 34 of th

123、e Implementation Regulations).Industry Access Permit(Article 30 of the Foreign Investment Law,and Article 35 of the Implementation Regulations)Market Regulation Departments Registration of FIE(Section1 of Article 37 of the Implementation Regulations).Coordination and Implementation of the Foreign In

124、vestment Information Reporting System(Article 38 of the Implementation Regulations,Section 1 of Article 39 of the Implementation Regulations).The new division of functions of the main regulatory departments for FIEs in the Foreign Investment Law era deserves attention as follows:(1)Competent commerc

125、e departments shall withdraw from the foreground under foreign investment access administration,and the establishment and change of FIEs,whether involving a negative list for foreign investment access or not,are no longer subject to the examination and approval or record-filing by competent commerce

126、 departments.It can be seen from Table 2 above that the Foreign Investment Law and its Implementation Regulations do not grant the competent commerce department the authority to review foreign investment access conditions and relevant commercial agreements set forth in the negative list for foreign

127、investment access.After the implementation of the new law,in addition to participating in the formulation of the negative list for foreign investment access and the catalogue for the guidance of industries in which foreign investment is encouraged,the competent commerce department will become the ma

128、in supervisor responsible for work related to foreign investment information reporting and complaints from FIEs.This means that the competent commerce authorities governing foreign investment over a long period of time will withdraw from the foreground for foreign investment access administration,an

129、d the situation that the dual tracks exist for the approval/record-filing of foreign investment access by the competent commerce authorities and the approval/record-filing of foreign investment projects by the competent investment authorities will be broken,making the special procedures for foreign

130、investment access review in Table 1 of this Chapter that the competent commerce authorities were once responsible for becoming history.Compared with the negative list administration and filing system implemented in 2016,under the system of pre-access national treatment plus negative list administrat

131、ion in the Foreign Investment Law era,the establishment and change of FIEs are no longer subject to the approval or filing of competent commerce departments,whether they are involved in the foreign investment access negative list or not.In this regard,the Ministry of Commerce has stipulated in Artic

132、le 6 of the Announcement on Issues concerning Foreign Investment Information Reporting that:For FIEs which are not subject to special administrative measures stipulated by the State on admission of foreign investments,if they have completed establishment registration formalities with market regulato

133、ry authorities before 31 December 2019,or a change stipulated in Article 6 and Article 7 of the Provisional Measures on Administration of Filing for Establishment 18 and Change of Foreign Invested Enterprises occurs but they have not completed filing for such change,they may still complete filing fo

134、rmalities through the foreign investment integrated administration system before 31 January 2020.FIEs established or changing after 1 January 2020 are not required to handle the record-filing of the incorporation or change for FIEs,but need to report investment information in accordance with the Mea

135、sures for the Reporting of Foreign Investment Information and the Announcement.(2)The foreign investment information reporting system will replace the existing system of examination and approval,record-filing,and joint reporting of FIEs,but it is not an administrative examination and approval newly

136、established for foreign investors or FIEs,and the submission of investment information is not a prerequisite for the registration of FIEs either.The Foreign Investment Law and the Implementation Regulations have specifically stipulated that the foreign investment information reporting system shall b

137、e an important legal system for standardising administration of foreign investments.Also,as outlined above,competent commercial authorities will be the major authorities for the establishment and implementation of the said system.However,submission of investment information is not in itself a prereq

138、uisite for foreign investors or FIEs to complete enterprise registration or other formalities,and is not an administrative examination and approval for new establishment of foreign investors or FIEs.In addition,the State Administration for Market Regulation(hereinafter referred to as the SAMR)also c

139、larifies in Article 3 of the Notice on Registration that:Submission of foreign investment information report is not a prerequisite for registration of a foreign invested enterprise.The Registration Authorities do not review the foreign investment information report.Upon submission of an enterprise r

140、egistration application,the applicant may continue to fill in the foreign investment information report information.(3)The role of foreign investment gatekeepers that ensure the implementation of the negative list for foreign investment access will be jointly shared by several relevant competent dep

141、artments in the process of performing their duties by law The provisions of Article 4 of the Explanation for the Special Administrative Measures for Foreign Investment Access(Negative List)(Edition 2019)(promulgated on 30 June 2019 and implemented as of 30 July of the same year),which are still in e

142、ffect at present,stipulate that Investment in non-prohibited fields covered in the Negative List for Foreign Investment Access shall be subject to foreign investment access permission.In that case,after the functions and roles assumed by the competent commerce departments in the foreign investment r

143、egulatory system have undergone significant changes in the foregoing(1)and(2),who will assume the role of gatekeeper of foreign investment and ensure the implementation of the negative list for foreign investment access has become a matter of great concern.In this regard,in the Foreign Investment La

144、w and its Implementation Regulations as well as the supporting provisions promulgated before the deadline of this chapter,there is no new special competent authority and corresponding procedures in connection with the so-called foreign investment access permission.As indicated in Table 2 above,after

145、 the implementation of the new Law,the approval and filing procedures for foreign investment projects(Article 29 of the Foreign Investment Law and Article 36 of the Implementing Regulations)and the industry access permission procedures for the competent industry authorities(Article 30 of the Foreign

146、 Investment Law and Article 35 of the Implementing Regulations)will continue to be retained.The market regulation authorities are,as before,19 responsible for the registration of FIEs,while the competent investment authorities(NDRC),the competent industry authorities and the market regulation author

147、ities can supervise and control whether a project complies with the Negative List or not in the process of approval/filing of investment projects,industry permit and enterprise registration,and strengthen interim and ex post regulation.Thus it can be seen that in the Foreign Investment Law era,after

148、 the withdrawal of the competent commerce department from the foreground for foreign investment access administration,the role of the foreign investment gatekeeper that guarantees the implementation of the negative list for foreign investment access will be jointly shared by several relevant compete

149、nt departments such as the competent investment department,the competent industry department and the market regulation department in the process of performing their duties in accordance with the law.Such institutional arrangements for sharing the role of gatekeepers of foreign investment imply that

150、multiple departments may be involved in the review of foreign access.Will this result in overlapping functions of multiple regulatory authorities?In this regard,the SAMR specifies in Article 2 of the Notice on Registration that:Where competent industrial departments have approved relevant enterprise

151、-related business license in accordance with the law prior to the registration,the registration authorities do not need to repeatedly review whether the enterprise meets the conditions stipulated in the special access administrative measures.However,in practice in the future,it remains to be seen ho

152、w the division and coordination of examination and approval of foreign investment access will be carried out among the approval/filing procedures for foreign invested projects,the procedures such as the industrial permit of competent industry authorities and the registration procedures of market reg

153、ulation authorities.3.3.Key procedural matters to pay attention to the establishment or change of a FIE 3.3.1 Approval and Filing of Foreign Investment Projects Firstly,according to the aforesaid existing Administrative Measures for the Approval and Record-filing of Foreign Investment Projects(Revis

154、ed in 2014),the Catalogue of Investment Projects Subject to Governmental Approval(2016 Edition)and the Circular on Effectively Implementing the Catalogue of Investment Projects Subject to Governmental Approval(2016 Edition)before the promulgation of the relevant new provisions on the approval and re

155、cord-filing of foreign investment projects,and in combination with the provisions of the Special Administrative Measures for Foreign Investment Access(Negative List)(2019 Edition),the Market Access Negative List(2019 Edition),the Administrative Regulations on the Approval and Record-filing of Enterp

156、rise Investment Projects(Revised in 2017)and the Administrative Measures for the Approval and Record-filing of Enterprise Investment Projects(Revised in 2017),the investment projects as mentioned in foreign investment shall be subject to approval or record-filing of investment projects refer to fixe

157、d asset investment projects invested in and constructed by enterprises within the territory of China,and the circumstances under which foreign investment is required to be subject to approval or record-filing of investment projects may be summarized as follows:Projects with a total investment(includ

158、ing capital increase)of USD300 million or above which are not prohibited by the Special Administrative Measures for Foreign Investments Access(Negative List)(2019 Edition)shall be subject to examination and approval by the NDRC;among them,20 investment projects with a total investment(including capi

159、tal increase)of USD2 billion and above shall be filed with the State Council for record;Projects with total investment(including increase in capital)below US$300 million which are not prohibited by the Special Administrative Measures for Foreign Investments Access(Negative List)(2019 Edition),shall

160、be subject to examination and approval by the provincial development and reform commission;The foreign investment projects other than those stipulated in and listed in item 1 to 10 of the Catalogue of Investment Projects Subject to Governmental Approval(2016 Edition)shall be approved according to it

161、ems 1 to 10 thereof;Foreign investment projects beyond the aforesaid scope of approval shall be subject to filing,and filed with the development and reform commission at the location of the project.After the implementation of the Foreign Investment Law,whether the aforesaid relevant provisions will

162、be updated and integrated,whether the new provisions on the approval and record-filing of foreign investment projects will be issued,and whether the practical operation of relevant departments such as the NDRC will be changed,will still be a continuing concern.Prior to implementation of the Foreign

163、Investment Law,the approval/filing procedures for foreign investment projects by the NDRC are not necessarily prerequisites for industry and commerce registration,and in practice,whether NDRCs approval/filing is required before such registration needs to be further confirmed based on the catalogue o

164、f prerequisites for industry and commerce registration.If there are no relevant requirements specified in the said catalogue,FIEs may first register with market regulation authorities and later complete the approval procedures for investment projects in accordance with the law as needed before carry

165、ing out operations.After the implementation of the Foreign Investment Law,we understand that this will still be retained.The SAMR has also specified in Article 2 of the Notice on Registration that:Competent industrial departments have already approved relevant enterprise-related business licensing i

166、tems in accordance with the law prior to the registration,the registration authorities do not need to repeat the review on whether the relevant enterprise meets the conditions specified in the special access administrative measures,but they do not specially mention the procedures for approval/record

167、-filing for the foreign investment projects.It remains unclear that how this will be processed in the future.3.3.2 Industry Permit In addition to the Special Administrative Measures for Foreign Investment Access(Negative List)and the restrictive provisions on foreign investment that are still scatte

168、red in many industrial norms,foreign investors and FIEs should also pay attention to the fact that,according to the Opinions of the State Council on Implementing the Market Access Negative List System(Guo Fa 2015 No.55,promulgated on 2 October 2015 and implemented on 1 December of the same year)and

169、other requirements,China currently adopts the Market Access Negative List System(the latest version is the Market Access Negative List(2019 Edition).Different from the Special Administrative Measures for Foreign Investment Access(Negative List)(2019 Edition)specially regulating the access of foreign

170、 21 investment,the Market Access Negative List(2019 Edition)is an administrative measure consistently applicable to both domestic and foreign investors and a unified requirement of market access management for all types of market players.Therefore,after the implementation of the Foreign Investment L

171、aw,foreign investors and FIEs shall,in addition to complying with the Special Administrative Measures for Foreign Investment Access(Negative List)and the special requirements for foreign investment that may still exist in the industrial norms,first satisfy the requirements of the Market Access Negat

172、ive List based on the principle of “same treatment to domestic and foreign investments”when they intend to invest in and operate in certain industries,fields or businesses.From the perspective of whether enterprise registration formalities with market regulation authorities should be handled before

173、or after such industry access permits,such permits(namely the licensing requirements in the Market Access Negative List)can be divided into two categories,namely the pre-registration approval items and post registration approval items(including registration of establishment and registration of chang

174、es).3.3.3 Registration of Enterprises As for the registration of establishment of FIEs after the implementation of the Foreign Investment Law,in addition to the Administrative Regulations on Company Registration(promulgated by the State Council and implemented on 6 February 2016)and the Administrati

175、ve Measures for the Registration of Partnership Enterprises,the Notice on Registration also provides for the registration method,examination standard,arrangement of transition period,requirements for application materials,etc.Concerning registration methods and review standards,in accordance with Ar

176、ticles 1 and 2 of Part I of the Notice on Registration,FIE registrations shall be conducted via the online enterprise registration system,and the registration authority shall conduct a formal review of the relevant application materials.An investor shall undertake that it complies with the requireme

177、nts of the Negative List,and based on the actual conditions,select the industries and sectors included in the Negative List;where licensing by the industry administrative authorities is required,relevant document shall be submitted for approval.With regards to the registration rules for enterprise t

178、ypes,pursuant to the provisions of Article 9 of Part IV of the Notice on Registration,an enterprise can be registered as a limited liability company,a company limited by shares or a partnership enterprise,and shall also indicate whether it is foreign invested or Hong Kong,Macau and Taiwan invested.E

179、xisting Sino-foreign equity joint venture enterprises and Sino-foreign cooperative joint venture enterprises applying for change of organisation form or organisation structure shall be subject to the applicable rules for existing enterprise types.3.3.4 Foreign investment information reporting Articl

180、e 34 of the Foreign Investment Law explicitly stipulates that the State shall establish a foreign investment information reporting system.The entities,contents,methods,supervision and management,legal liabilities and other particulars of the information reporting are specified in the Measures on For

181、eign Investment 22 Information Reporting and the Announcement on Issues Concerning the Reporting of Foreign Investment Information.The foreign investment information reporting system includes the initial report,change report,deregistration report and annual report.The details of the respective repor

182、ts are as follows:Initial Report Change Report Annual Report Reporting Entity Foreign Investor Foreign Invested Enterprise Foreign Invested Enterprise Application Situation(1)establishment of FIEs(including resident representative offices engaging in manufacturing and business activities)by foreign

183、investors in China;(2)Equity Mergers and Acquisitions by Foreign Investors of Domestic Non-FIEs(1)change in the information of the initial report(not applicable where FIEs are converted to domestic enterprises);(2)Foreign invested listed companies and companies listed on the National Equities Exchan

184、ge and Quotations may report changes in investors and their shareholding only when there is an accumulated change of more than 5%in shareholding of foreign investors or a change of control or relative control of foreign investors.After the establishment of a FIE Means of Submission Enterprise Regist

185、ration System National Enterprise Credit Information Publicity System Reporting time While handling the establishment registration of FIEs/while handling the Vary according to change of information January 1 to June 30 each year 23 change registration of merged or acquired enterprise Where a FIE whi

186、ch does not involve special administrative measures for foreign investments access has completed establishment registration formalities with the market regulatory authorities before 31 December 2019,or a change stipulated in Article 6 and Article 7 of the Provisional Measures on Administration of Fi

187、ling for Establishment and Change of Foreign Invested Enterprises occurs but has not completed filing for establishment or change of FIE,it may still complete filing formalities through the foreign investment integrated administration system before 31 January 2020.Content of Report Basic enterprise

188、information,information on investors and their actual controllers,investment transaction information,etc.Changes in the basic information of the enterprise,information of investors and their actual controllers,investment transaction information and other information(only changed items are required a

189、nd other unchanged items are not required to be filled in)Basic enterprise information,information on investors and their actual controller,information on business operation and assets and liabilities of the enterprise,and information on obtaining relevant industry permit(where the special administr

190、ative measures for foreign investments access are involved).24 The specific contents shall be determined in accordance with the principle of necessity and in combination with the actual conditions of foreign investment and relevant provisions on enterprise registration and enterprise information pub

191、licity,and be released by the Ministry of Commerce in the form of announcement.Legal Liabilities Whoever fails to submit investment information in accordance with the law and fails to make a supplementary report or correction after being notified by competent commerce departments shall be ordered by

192、 competent commerce departments to make corrections within a prescribed time limit;whoever fails to make corrections within the prescribed time limit may be subject to a fine of not more than CNY500,000.3.3.5 Declaration of the Concentration of Undertakings Article 33 of the Foreign Investment Law s

193、tipulates:Foreign investors acquiring domestic enterprises or participating in concentration of undertakings by any other means shall be subject to examination of concentration of undertakings pursuant to the provisions of the Anti-monopoly Law of the Peoples Republic of China.According to Article 2

194、1 of the existing Anti-monopoly Law,where a concentration of business operators reaches the threshold for declaration prescribed by the State Council,the business operators concerned shall make a declaration to the anti-monopoly enforcement authority of the State Council in advance,and shall not imp

195、lement the concentration in the absence of such declaration.According to Article 48 of this Law,where an undertaking implements concentration in violation of the provisions of this Law,the anti-monopoly enforcement agency of the State Council shall order the undertaking to stop implementing concentr

196、ation,dispose the shares or assets within a stipulated period,transfer the business within a stipulated period and adopt other necessary measures to reinstate the pre-concentration status,and may impose a fine of not more than RMB500,000.The SAMR not only details the illegal implementation of operat

197、or concentration,but also raises the fine amount from the a fine of less than CNY500,000 stipulated in the existing law to a fine of less than 10%of the sales revenue of the previous year,according to Article 55 of the Revised Draft of the Anti-monopoly Law(Draft for Public Comment)released on 2 Jan

198、uary 2020.This also reflects the determination of the anti-monopoly law enforcement authorities of China to continue to step up efforts to investigate and punish illegal concentration of undertaking in the future.Because the time required for the declaration procedure of the concentration of underta

199、kings is relatively long(the statutory total review time limit is 180 days after the case is filed,usually it takes about three to six weeks from the submission of declaration materials to the time before the filing is accepted),and the illegal consequences are serious,whether declaration is require

200、d may have very significant impact on the transaction schedule,transaction structure and even specific transaction conditions.Therefore,we suggest that at the beginning of the 25 transaction that may involve change of corporate control,whether declaration of the concentration of undertakings shall b

201、e conducted and how to conduct such declaration shall be studied and confirmed as the top priority.3.3.6 National Security Review As for the national security review of foreign investment,prior to the promulgation of the Foreign Investment Law,only principle provisions are scattered and mentioned in

202、 few articles of laws.In this context,Article 35 of the Foreign Investment Law stipulates that:The State establishes a foreign investment security review system to conduct security review on foreign investments which have or may have an impact on national security.The safety review decision made in

203、accordance with the law is final,and the safety review system for foreign investment is officially established at the level of law for the first time.The Implementation Regulations also mention in Article 40 that the State will establish a security review system for foreign investments.Under the bac

204、kground of the rise of global protectionism,major western countries such as Europe and the United States are strengthening the national security review for foreign investment,and Article 40 of the Foreign Investment Law also explicitly stipulates that China may take corresponding and equivalent meas

205、ures against other countries in terms of discriminatory restrictions and prohibitions on investment as the case may be,which means that the security review mechanism may also become a countermeasure of China to respond to international investment and trade conflicts.Therefore,Chinese regulatory auth

206、orities are expected to have separate legislation for the security review of foreign investment in the future,refine the rules of relative principle,and establish a more complete security review system for foreign investment,so as to ensure the national economic security.Pursuant to the provisions o

207、f the Foreign Investment Law and the Implementation Regulations and from the perspective of current practice,national security review will become a link that may bring important impact on foreign investment.Affected by complicated policy consideration factors,the application of foreign investment se

208、curity review system is uncertain to some extent.We suggest that foreign investors and FIEs pay close attention to the legislative and practical trends to better strengthen compliance and transaction process management.3.4.Key procedures on deregistration of a FIE 3.4.1 Liquidation Before the Foreig

209、n Investment Law comes into effect,the applicable laws for liquidation and deregistration of enterprises with foreign investment are mainly the laws on Sino-foreign equity joint venture enterprises,Sino-foreign cooperative joint venture enterprises and wholly foreign owned enterprises(hereinafter re

210、ferred to as the“Laws on Three Types of FIEs”),the Company Law and the Regulations on the Administration of Company Registration.In terms of the dissolution and liquidation of FIEs(not including bankruptcy liquidation),one of the main differences in liquidation between the laws on Sino-foreign equit

211、y joint venture enterprises,Sino-foreign cooperative joint venture enterprises and wholly foreign owned enterprises and the Company Law is the provisions on the name of liquidation organization(hereinafter referred to as the liquidation committee and liquidation team)and its composition,the specific

212、 contents are as follows(only taking a limited liability company for example):26 “Liquidation Committee”under the Laws on Three Types of FIEs Liquidation team under the Companies Law Sino-foreign joint venture Wholly Foreign-owned Enterprises Limited Liability Company Generally elected among the dir

213、ectors.In the circumstance that the directors cannot serve or are unsuitable to serve,the joint venture may appoint registered accountants and lawyers in China.(Article 92 of the Regulations for the Implementation of the Law on Sino-foreign Equity Joint Ventures)It shall be composed of the legal rep

214、resentative of the wholly foreign-owned enterprise,representatives of the creditors and representatives of the relevant competent authorities,and Chinese certified accountants and lawyers shall be invited to participate.(Article 72 of the Implementing Rules of the Law on Wholly Foreign-owned Enterpr

215、ises)It shall be composed of shareholders.Where the liquidation team is not established within the stipulated period,the creditors may apply to the court to appoint a liquidation team.(Article 183 of the Company Law)Before the implementation of the Foreign Investment Law,in practice,some cities(such

216、 as Beijing)requires FIEs to set up liquidation groups comprising of shareholders,which is the requirement under the dissolution and liquidation provisions of Company Law;while other cities(such as Shanghai)still adhere to the provisions of the Laws on Three Types of FIEs,deeming it sufficient to es

217、tablish liquidation committees for the liquidation of FIEs.After the Foreign Investment Law comes into force,for the FIEs in the form of companies(excluding foreign invested partnership enterprises),in the Foreign Investment Law era and in accordance with the Company Law,the main procedures of liqui

218、dation are as follows:establishment and filing of liquidation team;notification of creditors,reporting and registration of claims;formulation and confirmation of the liquidation plan;27 liquidation,distribution of the remaining properties or application for bankruptcy;preparation and confirmation of

219、 the liquidation report.3.4.2 Deregistration Upon completion of liquidation,the FIE shall apply to the original company registration authorities for deregistration.Pursuant to the provisions of the Notice on Registration and the Measures on Foreign Investment Information Reporting,where the laws and

220、 administrative regulations stipulate that prior to deregistration of an enterprise,licensing by the industry administrative authorities is required,the foreign investor or the FIE shall submit the relevant approval document to the market regulation authorities at the time of application for deregis

221、tration.According to Article 13 of the Measures on Foreign Investment Information Reporting and the Announcement on Issues concerning Foreign Investment Information Reporting,where a FIE is deregistered or converted into a domestic-invested enterprise,it shall be deemed that the deregistration repor

222、t has been submitted after the deregistration of the enterprise or change of the registration of the enterprise,and the related information shall be pushed by the market regulation department to the competent commerce department.The FIE does not need to submit such report separately.In addition,with

223、 respect to the deregistration of FIEs within the transitional period of five years after the implementation of the Foreign Investment Law,Article 12 of Part V of the Notice on Registration stipulates that where FIEs established in accordance with the law before 1 January 2020 apply for deregistrati

224、on according to the original organization form,organization organ and deliberation and voting mechanism,the registration authorities shall accept the deregistration application.That is,FIEs that intend to be deregistered in the transitional period are not required to first adjust their enterprise st

225、ructures before filing deregistration applications so as to complete deregistration formalities.28 Part B M&A,Reorganization by Foreign Investors Chapter IV M&A by Foreign Investors:the M&A Rules,Affiliated M&A and Cross-border Exchange of Equity Interest Sun Haishan 4.1 M&A by Foreign Investors und

226、er M&A Rules:Approval System On August 8,2006,Ministry of Commerce(the“MOFCOM”),State-owned Assets Supervision and Administration Commission of the State Council,State Administration of Taxation,State Administration for Industry and Commerce,China Securities Regulatory Commission(the“CSRC”)and State

227、 Administration of Foreign Exchange promulgated the Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors(the“M&A Rules”),which took effect on September 8 and was amended by the Order of Ministry of Commerce 2009 No.6 promulgated by MOFCOM on June 22,2009.The M&A Rule

228、s defines two types of mergers and acquisitions of domestic enterprises by foreign investors to be applied，respectively Equity M&A and Asset M&A.Equity M&A shall mean a foreign investor purchases the equity interest of the shareholder,or subscribes the capital increase,of a non-foreign-invested ente

229、rprise in the PRC(or“domestic company”defined under the M&A Rules),for which the domestic company is converted into a foreign-invested enterprise(the“FIE”),while the following two circumstances could either constitute an Asset M&A:(i)a foreign investor establishes a FIE,and this FIE then purchases t

230、he assets of a domestic enterprise and operates them,or(ii)a foreign investor purchases the assets of a domestic enterprise and uses such assets as investment to establish a FIE to operate the assets.According to the M&A Rules,where a FIE is to be established due to an Equity M&A or Asset M&A,it sha

231、ll be subject to the approval of the competent department of commerce accordingly and go through registration with the registration authority for alteration or establishment particulars.4.2 M&A by Foreign Investors after the New Policies:From Record-Filing System to Information Reporting System The

232、promulgation of the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises(the“Interim Administrative Measures”)on October 8,2016 has made a breakthrough to the previous approval system 29 regarding FIE,according to which the establishme

233、nt or change of a FIE involving no special administrative measures for access is not required to get an approval from the department of commerce any more,but subject to the record-filing procedures instead.And the amendment of the Interim Administrative Measures on July 30,2017 further specified tha

234、t the breakthrough also applied to the area of foreign mergers and acquisitions.Pursuant to the decision promulgated by MOFCOM on July 30,2017 to amend the Interim Administrative Measures,where a foreign investor merges or acquires a domestic non-foreign invested enterprise or makes strategic invest

235、ment in a listed company,record-filing administration shall be applied if such investment does not involve the special administrative measures for access prescribed by the state or the Affiliated M&A(see definition below).On December 26,2019,the Implementing Regulations of the Foreign Investment Law

236、 of the Peoples Republic of China(the Order of the State Council of the Peoples Republic of China No.723,or the“Implementing Regulations of the Foreign Investment Law”)was promulgated by State Council.On December 30,2019,the Measures for Reporting of Information on Foreign Investment was promulgated

237、 by Ministry of Commerce and took effect on January 1,2020,which replaced the Interim Administrative Measures mentioned above.According to Article 9 of the Measures for Reporting of Information on Foreign Investment,where a foreign investor acquires a domestic non-foreign-invested enterprise by equi

238、ty,it shall submit an initial report through the enterprise registration system when handling the change registration for the acquired enterprise.The implementation of the Implementing Regulations of the Foreign Investment Law and the Measures for Reporting of Information on Foreign Investment means

239、 that the administration methods of Foreign M&A have further changed from the record-filing system to the reporting system.In addition to the changes to the abovementioned administration mechanism,the laws and regulations on foreign investment have been continuously updated.As the M&A Rules has not

240、been revised since 2009,some of its provisions concerning special administration on M&A by foreign investors,such as rules on the pricing or the time limit for contribution(see Articles 14 and 16 of the M&A Rules for details)1,are no longer applicable due to their conflicts with other laws or regula

241、tions,or their applicability need to be further confirmed in practice with the competent authorities.In summary,the present administration of M&A by foreign investors is mainly subject to the general regulations on foreign investment and the higher-level laws such as the Company Law2.However,as for

242、the applicability of the special provisions on affiliated 1 According to the information we have learned from our previous projects,some of the local commerce authorities no longer make mandatory requirements for asset evaluation and payment deadlines for foreign mergers and acquisitions.2 The regul

243、ations on the establishment of the FIE would be further discussed in Chapter III.The Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies shall be applied when it comes to the foreign M&A concerning strategic investment of foreign investors in A-shares company,wh

244、ich would be further discussed in Chapter IV.30 mergers and acquisitions(“Affiliated M&A”)under the M&A Rules,it requires further observation and analysis based on the future adjustment of the M&A Rules after promulgation of the new policies on foreign investment.4.3 Affiliated M&A 4.3.1 Affiliated

245、M&A under the Negative List According to Article 11 of M&A Rules,Affiliated M&A refers to the domestic companies,enterprises or natural persons merging or acquiring domestic companies which have something to do with them in the name of the companies in foreign countries legally established or contro

246、lled by them,and requiring that the companies,enterprises or person concerned shall not evade from the above requirements by domestic investment of the FIEs or by other means.Despite that the applicability of the M&A Rules remains to be further observed,the relevant rules are still applicable and im

247、portant in case of Affiliated M&A.It is specified under the Special Administrative Measures for Access of Foreign Investment(Negative List)(2019 Edition)that,where a M&A of affiliated domestic companies by domestic companies,enterprises or natural persons via the companies legally established or con

248、trolled overseas thereby involves matters relating to the establishment or change of foreign-invested projects and enterprises,the existing provisions shall apply,which means that implementation of Affiliated M&A still requires the approval by the MOFCOM under Article 11 of the M&A Rules.4.3.2 Small

249、 Red Chip Reorganization Path under“Affiliated M&A”Supervision Considering the fact that there are seldom cases of Affiliated M&A had obtained the approvals from the MOFCOM,for domestic private enterprises which propose to adopt an overseas red-chip structure(the“Small Red Chip Model”3)to obtain ove

250、rseas financing,it is scarcely possible for them to obtain the approval from the MOFCOM if Affiliated M&A is involved during the process of reorganization.As a result,these domestic private enterprises have to design the respective path of reorganization based on their own situations so that the adm

251、inistration mechanism for Affiliated M&A wont be triggered.In this regard,as we can learn from those successful cases of Small Red Chip Model,“Slow Walk Plan”,“Identity Change Plan”and“VIE Structure”are the three main methods among them.1)Slow Walk Plan For those domestic private enterprises adoptin

252、g Slow Walk Plan,the first step is to find a non-affiliated foreign investor to invest in the domestic enterprise by way of acquisition of equity interest or subscribing increased capital contribution,after which the domestic enterprise will be converted into a Sino-Foreign Equity Joint Ventures(“EJ

253、V”).After the overseas structure under the Small Red Chip Model is completed4,there comes the second step:a foreign company under the overseas 3 The Small Red Chip Model would be further discussed in Chapter VIII.4 A domestic resident holding entities of a domestic company shall complete the foreign

254、 exchange registration formalities for overseas investment for the newly established special purpose company that is intended to be used 31 structure will,directly or via its newly established wholly foreign-owned enterprise,acquire the entire equity interest of the EJV5 so that the EJV will be furt

255、her converted to a Wholly Foreign-Owned Enterprise(“WFOE”)or a WFOEs wholly-owned subsidiary after the second step.As a result,the rights and interests of the domestic enterprise will ultimately be incorporated into the structure for overseas financing.A simplified illustration of the above steps re

256、lated to Slow Walk Plan is as follows6:First Step:Introduction of a non-affiliated foreign investor to convert the domestic enterprise to a Sino-Foreign Equity Joint Ventures(EJV).for future return investments in the bank where the domestic equity is located(“Registration under Circular No.37”).5 Ac

257、cording to the Guidance Manual for Foreign Investment Access Management Promulgated by the Foreign Investment Department of the Ministry of Commerce,the established FIE in China shall transfer equity to the foreign party without reference to merger and acquisition regulations,regardless of whether t

258、here is a related relationship between the Chinese and foreign parties,and whether the foreign party is an original shareholder or a new investor.As a result,in the second step,M&A Rules shall not be applied to the transfer of the entities of the EJV since M&A Rules shall govern mergers and acquisit

259、ions of non-foreign-invested enterprises.Relevant regulations on equity transfer of FIEs,such as Several Provisions on the Alteration of Investors Equities in Foreign Investment Enterprises and the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-inves

260、ted Enterprises,shall be applied.6 The simplified illustration of the steps only displays the basic model of setting up red-chip structure under Slow Walk Plan.In practice,cross-border financing entities should adjust restructuring plans according to their own circumstances.Founder EJV Foreign Inves

261、tor Founder Domestic enterprises(domestic-funded)Offshore Onshore 32 Second Step:a foreign company or a newly established wholly foreign-owned enterprise to acquire the entire equity of the EJV so that the EJV becomes a WFOE.It should be noted that the“Slow Walk Plan”cannot completely exclude the ri

262、sk that those restructuring steps in aggregate may be deemed to constitute a substantial Affiliated M&A by the competent department of commerce.In this case,the PRC lawyers would usually advise the entities which intend for overseas financing to obtain a confirmation on the legality and compliance o

263、f the restructuring steps from the competent department of commerce.2)Identity Change Plan “Identity Change Plan”requires the actual controller of the domestic enterprise to obtain foreign nationality and foreign passport and cancel his/her PRC nationality or domestic household registration before t

264、he restructuring.Therefore,the actual controller is no longer a domestic resident as defined in Article 11 of the M&A Rules.However,since Identity Change Plan involves more consideration and takes longer time,it has been less adopted in the recent cases.3)VIE Structure “VIE Structure”refers to struc

265、ture which could incorporate the interests in the domestic enterprises into the overseas financing structure by contractual arrangement(VIE Model)instead of equity holding.Firstly,the shareholders of the domestic enterprise,as an operating company(“OPCO”),will also build up the overseas structure wi

266、th a series of overseas enterprises,one of which will then set up a new WFOE.Then a series of agreements will be signed among the BVI Company Hong Kong Company Cayman Founder EJV Foreign Investor Founder WFOE/WFOEs wholly-owned subsidiary Offshore Onshore 33 newly formed WFOE,the OPCO and the OPCOs

267、shareholders,in order to ensure the SPVs actual control and the financial consolidation over the OPCO.In this situation,theres no direct change of equity of the domestic enterprise.However,it is noted that the VIE Model has its inherent deficiencies(such as structural instability)compared with the s

268、tructure controlled by direct equity holding.Therefore the offshore securities regulatory authorities also pay attention to the Pre-IPO companies which have adopted VIE Model in varying degrees and make restrictions in this regard accordingly7.4.4 Cross-border Exchange of Equity Interest 4.4.1 Cross

269、-border Exchange of Equity Interest under M&A Rules “Cross-border Exchange of Equity Interest”can be broadly understood as using the equity interest(usually shares)of a foreign company as the method to pay the consideration for purchasing the equity interest of a domestic enterprise.But when it come

270、s to the law and regulations in the PRC,except for the Interim Administrative Measures,relevant contents of which will be further clarified below,the only corresponding provisions are the M&A Rules,which regulate cross-border exchange of equity interest in case of M&A by foreign investors.According

271、to Article 27 of the M&A Rules,Cross-border Exchange of Equity Interest under M&A by foreign investors,or known as foreign investors M&A of domestic companies by payment of equities,means that the shareholder of an overseas company purchases the inventory equity interest or increased shares of a dom

272、estic company and pays with its equity interest or the increased shares of the overseas company.The M&A Rules stipulate that foreign investors M&A of domestic companies by payment of equities shall be reported to the MOFCOM for approval.Further,Article 28 and 29 of the M&A Rules set out certain requ

273、irements for the overseas company and the equity interest of the domestic/overseas company in this case,among which the overseas company shall be a listed company or the special purpose venture(the“SPV”)as defined under Section III of the M&A Rules.The M&A Rules also clarify the overseas investment

274、procedures required in the Cross-border Exchange of Equity Interest.As a conclusion,although the M&A Rules allow the foreign investors M&A of domestic companies by payment of equities,there are meanwhile strict conditions for application.According to the Article 9 of the Measures for Reporting of In

275、formation on Foreign Investment,which have been implemented on January 1,2020,where a foreign investor acquires a domestic non-foreign-invested enterprise by equity,it shall submit an initial report through the enterprise registration system when handling the change registration for the acquired ent

276、erprise.There are no clear rules in current regulations concerning the feasibility and the specific operation of the cross-border exchange of equity interest which does not fall into the regulation of the M&A Rules,for which further communication and confirmation with the local competent authorities

277、 on a case-by-case basis may be necessary.7 The VIE model would be further discussed in Chapter VIII.34 4.4.2 Brief Analysis on Recent Cases of Cross-border Exchange of Equity Interest As mentioned above,the M&A Rules is the first regulation which has brought in the conception of“Cross-border Exchan

278、ge of Equity Interest”in 2006,pursuant to which the foreign investor as a qualified overseas companys shareholder is allowed to purchase the equity interest of a domestic enterprise with the equity interest in the overseas company.However,the precedents of“Cross-border Exchange of Equity Interest”ha

279、ve rarely been seen since the first case occurred in 2009 when Tianjin Port(Group)Co.,Ltd.acquired new shares of Tianjin Port Development Holdings Limited(3382.HK)with the consideration of the inventory shares it held in Tianjin Port Holdings Co.,Ltd.(600717.SH).The relevant parties in most of such

280、precedents are related to the state-owned enterprises,or the transactions were practically internal restructuring under common control.More recently,the typical cases of“Cross-border Exchange of Equity Interest”8 include the Acquisition of Home Inns by BTG Hotels(600258.SH)in 2016 where the foreign

281、investor exchanged the shares it held in an offshore company for the shares of a listed company in the PRC,the Acquisition of All Circuits S.A.S by Aerospace Hi-Tech(000901.SZ)by way of issuing additional shares in 2016,which was practically a shareholders contribution made by the de facto controlle

282、r of Aerospace Hi-Tech as both parties of this transaction are controlled by China Aerospace Science and Industry Corporation(CASIC),as well as the Acquisition of China National Chemical Equipment(Luxembourg)S.r.l by Tianhua Institute(600579.SZ)9 by means of share issuance in 2018,which also belongs

283、 to the internal restructuring under common control(of China National Chemistry Corporation Ltd).Therefore,it is hard for those private domestic enterprises which long for overseas financing to use such precedents for reference.Successful cases of“Cross-border Exchange of Equity Interest”were rarely

284、 seen in the past,which is partially due to the incompleteness of the relevant regulations in the PRC as well as the prudent attitude of the competent authorities in this regard.However,as the Interim Administrative Measures provided that eligible Cross-border Exchange of Equity Interest that does n

285、ot involve the implementation of special administrative measures for access is also subject to the record-filing administration(while the MOFCOMs approval is not required)and those conditions provided under the M&A Rules have not been stipulated in the provisions regarding foreign investors making s

286、trategic investments by payment of their overseas companies equities under the Administrative Measures for Strategic Investment by Foreign Investors in Listed Companies(Draft for Comment)issued by the MOFCOM,the CSRC together with other four departments on July 30,2018,the relevant authorities may h

287、ave showed their attitude to lift the restrictions on“Cross-border Exchange of Equity Interest”in the recently updated regulations or drafts.Under such circumstances,there occurs the first case where“Cross-border Exchange of Equity Interest”implemented by a private domestic enterprise has been appro

288、ved by the CSRC in November 2019,namely,Shanghai RAAS(002552.SZ)has purchased 45%shares of Grifols Diagnostic Solutions Inc.from an overseas listed company Grifols by means of 8 The relevant transaction in these cases are not the type of“Cross-border Exchange of Equity Interest”as defined in the M&A

289、 Rules because the equity interest of overseas companies paid as consideration of the relevant acquisitions did not belong to offshore listed companies or SPV.And the relevant approvals made by the MOFCOM in these cases were based on the Administrative Measures for Foreign Investors Strategic Invest

290、ment in Listed Companies,not on the M&A Rules.9 The abbreviation of this stock is currently known as“Krauss”.35 share issuance10.This precedent might indicate that there would be more chance for the transaction of“Cross-border Exchange of Equity Interest”in the future,especially for the private ente

291、rprises.4.4.3 Expectation on Cross-border Exchange of Equity Interest As part of the supporting regulations of the Foreign Investment Law,the Implementing Regulations of the Foreign Investment Law,which took effect on 1 January,2020,provides that the registration of FIEs shall be handled by the Stat

292、e Administration for Marketing Regulation or any local administrations for market regulation authorized by the state administration.The State Administration for Market Regulation has also issued the Guiding Opinions on Effectively Implementing the Administration of the Registration of FIEs in Accord

293、ance with the Law(Draft for Comment)on November 6,2019,which provides that local market regulation departments are responsible to review the relevant materials submitted by foreign investors or FIEs and to decide whether they have met the conditions of special administrative measures as set out in t

294、he Negative List(if applicable).A foreign investment involving no special administrative measures shall be administered according to the principle of“consistency between domestic and foreign investments”.Therefore,the foreign investors M&A by means of“Cross-border Exchange of Equity Interest”might j

295、ust need to go through the registration procedure with the local market regulation departments.Further,according to the Foreign Investment Law and the Measures for Reporting of Information on Foreign Investment,both of which took effect on 1 January,2020,the administration system by approval(for for

296、eign investments falling within the Negative List)and by record-filing(for those involving no restrictions under the Negative List)have been replaced by the reporting system.We understand that provisions regarding the approval for Cross-border Exchange of Equity Interest under the M&A Rules should b

297、e further adjusted in the short future,and special restrictions on Cross-border Exchange of Equity Interest may be gradually lifted.10 The CSRC has approved this transaction on December 25,2019 according to the public announcement disclosed by Shanghai RAAS while the record-filing procedures have no

298、t been completed by now at the local commerce department(Shanghai Municipal Commission of Commerce)for overseas investment and for strategic Investment in listed companies by foreign Investors.36 Chapter V Strategic Investment in A-share Listed Companies by Foreign Investors Guo Shifang 5.1 Adjustme

299、nt to the Regulatory Policies Governing Strategic Investment by Foreign Investors Under the existing regulatory framework,the Administrative Measures for Foreign Investors Strategic Investment in Listed Companies(hereinafter referred to as the Strategic Investment Measures)shall apply to the obtaini

300、ng of shares of A-share listed companies(hereinafter referred to as the Listed Companies)by foreign investors through medium-term and long-term strategic mergers or acquisitions or investments of a certain scale.The currently effective Strategic Investment Measures were promulgated on December 31,20

301、05,with slight adjustments made to the examination and approval procedures on October 28,2015,that the sequential approval from the Ministry of Commerce and the China Securities Regulatory Commission(hereinafter referred to as the“CSRC”)was changed to the parallel approval.Due to the early formulati

302、on of the existing Strategic Investment Measures,the qualification,investment proportion and lock-up period requirements for foreign investors are stricter,making it increasingly difficult to meet the practical needs.Therefore,the Ministry of Commerce has once promulgated Notice of the Ministry of C

303、ommerce on Soliciting Public Opinions for the Measures on the Administration of Strategic Investment in Listed Companies by Foreign Investors(Draft for Comments)(hereinafter referred to as the 2013 Draft for Comments)for solicitation of public opinions in September 2013.Although the provisions on th

304、e qualifications of foreign investors are more friendly in the 2013 Draft for Comments,but the relevant provisions in the 2013 Draft for Comments are not incorporated into the revised Measures for Strategic Investment in 2015.In the general context of the reform of the foreign investment management

305、system,the Ministry of Commerce issued Notice of the Ministry of Commerce on Soliciting Public Comments on the“Decision on Revising the Administrative Measures for Foreign Investors Strategic Investment in Listed Companies(Draft for Comments)”(hereinafter referred to as the 2018 Draft for Comments)o

306、n July 30,2018,and the 2018 Draft for Comments has not yet been officially promulgated for implementation.The specific adjustments still remain to be seen.5.2 The Main Means of Strategic Investment by Foreign Investors As for the means of strategic investment by foreign investors in Listed Companies

307、,the Basic Information of Strategic Investment by Foreign Investor in Listed Companies released by the Ministry of Commerce enumerates four means as follows:37 Private Placement Transfer through Agreement Tender offer Other means Although the mean of Tender Offer mentioned above are specified in the

308、 2013 Draft for Comments and the 2018 Draft for Comments,it did not specify in the current Strategic Investment Measures in 2005.However,in practice,a tender offer has always been one of the means commonly used by foreign investors to invest in A-share listed companies,and is also one of the main me

309、ans of acquisition of Listed Companies as specified in Article 62 of Law of the Peoples Republic of China on Securities(Revised in December 2019,Order No.37 of the President)(hereinafter referred to as the Securities Law).Moreover,we noticed that the 2013 Draft for Comments also includes two circums

310、tances where foreign investors indirectly acquire A-shares in the scope of foreign strategic investment,i.e.an investor that acquires A shares by participating in the reorganization of a Listed Company through a foreign-invested enterprise it invests in and an investor that intends to obtain the act

311、ual controlling power of a Listed Company by engaging in the M&A of a shareholder of the Listed Company.However,there is no relevant provision in the 2018 Draft for Comments released subsequently.As for whether the subsequent increase of A shares through block trading and other secondary market tran

312、sactions by foreign investors who have opened A-share securities accounts through foreign strategic investment or capital contribution prior to listing shall meet the requirements for foreign strategic investment,there is no clear provisions in both the Strategic Investment Measures and the subseque

313、nt drafts for comment.In practice,in 2015,the SEB increasing the holding of SUPOR shares through block trading and other cases of foreign investment fulfilled the approval process.5.3 Examination and Approval Procedures for Foreign Strategic Investment Except where internal examination and approval

314、procedures of Listed Companies are required(such as shareholders meetings,directors meetings,etc.,if applicable),before the implementation of the Interim Measures for Record-filing Administration of the Establishment and Change of Foreign-invested Enterprises(2017 Revision)(hereinafter referred to a

315、s the Filing Measures)revised on July 30,2017,foreign strategic investment shall be subject to the approval by the Ministry of Commerce,the approval by the relevant authorities(e.g.financial industry requires approval by financial regulatory authorities,State-owned enterprises are required to comple

316、te the relevant examination and approval formalities for State-owned assets)and the approval by the CSRC(e.g.issuance of new shares).After the implementation of the Filing Measures,for industries that the special administrative measures for admission of foreign investments are not involved,the Minis

317、try of Commerce has changed the pre-approval procedures to post-filing,pleting filing change formalities with the commerce administrative authorities within 30 days after the securities registration with the securities depository and clearing institution and obtaining the approval of the relevant ad

318、ministrative authorities(if applicable)and the CSRC(e.g.issuance of new shares).If the foreign investors plan to control Listed Companies via transfer through agreement,they shall also submit the Listed Companies takeover reports and related documents that have been legally confirmed by the stock ex

319、change to the CSRC.After being examined and approved by the CSRC,the 38 foreign investors shall go through the procedures for confirmation of share transfer with the stock exchange.After the implementation of the Measures for Foreign Investment Information Reporting(the Reporting Measures)on January

320、 1,2020,the relevant procedures involving commerce departments is changed into the reporting system,that is,submitting investment information to competent commerce departments via the online enterprise registration system and the national enterprise credit information disclosure system,and the inves

321、tment information will be submitted in the form of initial report,change report,cancellation report and annual report,etc.Among them,a foreign-invested Listed Company or a company listed on the National Equities Exchange and Quotations is only required to report changes of its investors and their sh

322、areholding when the shareholding percentage of foreign investors has experienced changes of over 5%cumulatively or when the status of foreign investors as controlling or relative controlling shareholders changes.5.4 Requirements for Strategic Investment by Foreign Investors as Set forth in the Curre

323、nt Rules(Strategic Investment Measures,2005)The purpose of the current Strategic Investment Measures is to meet the financing needs of Listed Companies and introduce foreign investment with advantages in management,technology and capital.Therefore,there are relatively high requirements for the capit

324、al,investment proportion and lock-up period of foreign investors.Any foreign investor or its parent company that obtains shares in a Listed Company must be a legal person or other organization but not a foreign natural person,and it or its parent companys real overseas assets must be no less than US

325、D 100 million or assets under it or its parent companys management must be no less than USD 500 million,with a sound governance structure and good internal control system,and it has not been subject to severe punishment imposed by domestic and overseas regulatory authorities(including its parent com

326、pany)in the last three years.Besides,a foreign investor shall hold no less than 10%of the shares in a Listed Company upon completion of its initial investment,unless otherwise specified in a special industry or approved by the relevant competent authority.Besides,foreign investors must not transfer

327、their shares of listed firms within 3 years after they acquired the shares.5.5 Relevant Adjustments of the New Policies(“Reporting Measures”and the“2018 Draft for Comments”)According to the 2018 Draft for Comments,the major changes of regulatory rules on foreign strategic investment are as follows:F

328、irstly,in terms of the examination and approval authority,the Strategic Investment Measures stipulates that all foreign strategic investment shall be submitted to the Ministry of Commerce for examination and approval,while the 2018 Draft for Comments specifies that the examination and approval autho

329、rity for foreign strategic investment below the threshold shall be delegated to competent commerce departments at the provincial level.Meanwhile,according to the Reporting Measures,where the merger and acquisition of domestic non-foreign-invested enterprises and the strategic investment in Listed Co

330、mpanies by foreign investors,which do not involve special administrative measures and 39 affiliated merger and acquisition,initial reports shall be submitted through the enterprise registration system.However,affiliated mergers and acquisitions shall still be subject to approval by the Ministry of C

331、ommerce pursuant to the Provisions on Foreign Investors Merger with and Acquisition of Domestic Enterprises.(hereinafter referred as“M&A Provisions”)Strategic Investment Measures 2018 Draft for Comments Article 3 Subject to the approval of the Ministry of Commerce,the investors may make strategic in

332、vestment in the Listed Companies pursuant to these Measures.Article 3 The strategic investment not involving special market entry management measures as prescribed by the State shall apply the record-filing administration;The Ministry of Commerce of the Peoples Republic of China or the competent dep

333、artments of commerce of provinces,autonomous regions,municipalities directly under the Central Government,cities separately designated in the State plan and the Xinjiang Production and Construction Corps(hereinafter referred to as the provincial competent departments of commerce)shall,according to the authority prescribed by the State Council,be responsible for examination,approval and administrat