Any investment by a foreign person regardless of its form (greenfield/M&A, equity/asset, onshore/offshore) is subject to FDI restrictions, filing or review.

Negative Lists set out investment sectors in which foreign investment is prohibited or restricted.

For National security review (NSR): Office for Foreign Investment Security Review Working Mechanism, established under National Development and Reform Commission (NDRC) and led by NDRC and Ministry of Commerce (MOFCOM).

For Foreign-invested enterprise registration filing/reporting (FIE Filing): State Administration for Market Regulation, MOFCOM and the relevant industry regulator (if applicable).For Foreign Investment Project Filing: NDRC and State Council.

No time limit.

The FDI filings involve:

• NSR: this is mandatory if the investment falls into certain categories (military-related investments, or investments in key sectors leading to acquisition of actual control).
• FIE Filing: this is necessary to establish or acquire a company.
• Foreign investment project approval/record-filing (Foreign Investment Project Filing): this is required for certain projects falling under the Negative Lists or a State Council catalogue, and other fixed-asset construction projects.

National security triggers NSR.

Regardless of national security concerns, foreign investment restrictions are imposed in certain sectors (listed in the negative lists), and foreign investment project filing is required for certain types of projects.

The FDI regime captures indirect investments at the offshore level (but negative lists restrictions typically apply to the direct ownership of equity interests in entities established in Mainland China).

For NSR: usually up to 15 business days for preliminary review phase, up to 30 business days for standard review phase (if any), and up to 60 business days for special review phase (if any) plus a possible extended review phase.

For FIE Filing: usually up to 15 business days to obtain the business license (or longer if Foreign Investment Project Filing is required).

For Foreign Investment Project Filing: usually up to 30 business days for approval (but extensions may be granted), or up to seven business days for record-filing.

Fines, administrative and criminal penalties; unwinding of investment; impact on credit record in the social credit system.

No appeal against NSR decision.

If the authorities reject the FIE Filing or the Foreign Investment Project Filing, the applicant can file again.

No special measures.

The mainland of the People’s Republic of China (referred to below as China and for identification and differentiation purposes only, not including the Special Administrative Regions of Hong Kong and Macau, and Taiwan) adopts a multifaceted foreign direct investment (FDI) regime.

NSR

Foreign investments into China in certain fields are subject to national security review (NSR) conducted by the Office for Foreign Investment Security Review Working Mechanism (Working Mechanism Office) established under the National Development and Reform Commission (NDRC) and led by NDRC and the Ministry of Commerce (MOFCOM).

Negative Lists

The Negative Lists^[1] set out the sectors “restricted” or “prohibited” to foreign investment: in principle, any sector not listed in the Negative Lists is “permitted” and as such fully open to foreign investment.

Foreign investment in “restricted” sectors is allowed but subject to:

• Restrictions on the foreign equity ownership in the foreign invested enterprise (FIE) established in connection with or resulting from the foreign investment (e.g., by requiring a Chinese partner to hold a minimum – majority or minority – equity stake) or the nationality of its senior managers (e.g., by requiring that some of them be Chinese nationals).
• A reviewing process conducted by the State Administration for Market Regulation (SAMR) or the competent industry regulators to examine whether the restrictive requirements under the Negative Lists have been satisfied.

NDRC filing

Based on the black letter law, any foreign investment project must in principle be either approved by or record-filed with NDRC, but in practice this is not always the case (see the answer to question 2).

MOFCOM reporting

Certain information on the foreign investment must be reported to MOFCOM, either by SAMR or by the foreign investor or the FIE (as applicable and depending on local practice).

Industry permits

Certain industry-specific licenses, permits and registrations may be required which may appear to be obtainable on paper, but may not always be available in practice (as they require applications to and review by relevant authorities on a case-by-case basis). They may thereby serve as an additional de facto barrier to foreign equity participation in the market.

For completeness, it must be noted that foreign investment in certain sectors is encouraged under the Catalogue of Encouraged Industries for Foreign Investment (Encouraged Investment Catalogue), first issued by MOFCOM and NDRC on 30 June 2019 and the latest version of which has been issued on 26 October 2022. Favorable policies designed to attract investment may be found in the numerous FTZs and the Hainan FTP.

Any investment made by a foreign person into China, regardless of its form (greenfield, M&A, and whether equity or asset deal or carried out onshore or offshore) is subject to FDI restrictions, filing or review.

NSR

Any foreign investment that affects or may affect national security is subject to the NSR, and if the foreign investment falls within any of the following categories the parties concerned must proactively make the NSR filing:

• Military-related investments, which refers to investments in industries concerning national defense and security (e.g., military and military-supporting industries) or in areas surrounding military facilities and industrial military facilities.
• Investments in key sectors (to the extent that such investments lead to the acquisition of actual control over the entity that is the recipient of the investment), including key agricultural products, key energy and resources, manufacturing of key equipment, key infrastructure, key transport services, key cultural products and services, key information technology and internet products and services, key financial services, and key technologies.

This means that the NSR filing is mandatory for the foreign investments that fall within the above categories, and that the authorities have in addition the power to review any foreign investment (even if outside the above categories) if it impacts national security.

However, the NSR legislation does not define “national security”, and does not provide clarity on the exact scope of the sectors that trigger the mandatory NSR filing. For instance, it does not clarify the size of those buffer zones around military installations and facilities that are not allowed for foreign investments, or the parameters to be considered when grading the “key-ness” of the investment target. This gives the authorities broad discretion to potentially subject any foreign investment to the NSR.

Negative Lists

Several key sectors of interest to foreign investors, particularly in the services sectors, are prohibited or restricted to foreign investment under the Negative Lists, such as basic and value-added telecom services (VATS) (excluding e-commerce, domestic multi-party communications, store-and-forward, and call centers), and education, among others. Most media sectors, such as online publishing or provision of online audio-visual services such as video-on-demand remain off-limits to foreign investment.

The FTZ Negative List and the Hainan FTP Negative List are slightly shorter than the National Negative List, therefore it is possible that a sector that is prohibited or restricted in the National Negative List might be available in the FTZ Negative List or the Hainan FTP Negative List (although the gap between these Negative Lists is narrowing).

NDRC filing

The following types of foreign investment projects must be approved by NDRC (or its local branches, depending on the investment amount of the project):

• All projects in sectors listed under the Negative Lists.
• Certain infrastructure or fixed assets projects set out in the Catalogue of Investment Projects Subject to Governmental Approval issued by the State Council on 12 December 2016 (NDRC Approval Catalogue).

All other foreign investment projects must be record-filed with the local branches of NDRC. In practice, however, NDRC (at least in most cities) tends to interpret “projects” as “fixed-asset construction projects” but not including the mere establishment of an FIE if it does not engage in a “fixed-asset construction project” from the outset.

MOFCOM reporting

Basic information of the investment, the foreign investor, and the actual controllers must be reported to MOFCOM in respect of all greenfield investments and acquisitions of domestic companies. Depending on local practice, this information is reported to MOFCOM directly by SAMR, or by the foreign investor (in case of greenfield investment) or the target company (in case of acquisition) through an online reporting system.  

Any subsequent change to information previously reported to MOFCOM must also be reported to MOFCOM. For example, if there is a change to the actual controller of an FIE due to a new acquisition.

Industry permits

As noted in the answer to question 1, industry-specific licenses, permits and registrations may also be required, depending on the industry sector in which the foreign investment is carried out.

The Working Mechanism Office established under NDRC and led by NDRC and MOFCOM conducts the NSR.

NDRC and MOFCOM issue the Negative Lists and the Encouraged Investment Catalogue.

SAMR is the company registration authority in China. It is also responsible for reviewing whether a foreign investment project falls under the Negative Lists and if it meets the relevant requirements thereunder. However, where a foreign investment project is subject to pre-approval by or record-filing with an industry regulator under sector-specific regulations (i.e., where special industry permits or record-filings are required), the relevant industry regulator (such as the Ministry of Industry and Information Technology for the telecoms sector, or the Ministry of Education for the education sector) will be responsible for the review rather than SAMR.

NDRC administers the approval and record-filing of foreign investment projects. The State Council issues the NDRC Approval Catalogue.

MOFCOM administers the foreign investment information reporting.

Industry regulators are responsible for issuing and administering the relevant industry-specific licenses, permits and registrations.

There is no time limit beyond which the Chinese authorities can no longer investigate deals closed in the past. If any of the FDI procedures described above is not completed, the relevant Chinese authorities can take actions on their own. 

All of the filings described below must be completed before the investment can be carried out (i.e., before closing).

NSR

The NSR filing is mandatory if the investment falls within the categories illustrated in the answer to question 2.

The parties responsible to file are the foreign investor or the Chinese co-investor in the project (e.g., a JV partner) in case of greenfield investment, or the Chinese target company in case of acquisition of an existing company. The Working Mechanism Office may take initiative to instruct the parties concerned to make the NSR filing, if they do not do so on their own.

Additionally, the NSR welcomes whistleblowing. Any third parties, such as governmental agencies, enterprises, public organizations, and individuals, may voice their opinions and suggestions to the Working Mechanism Office if they believe a given foreign investment transaction will or may give rise to national security concerns.

Filing with SAMR, MOFCOM, NDRC and industry regulators

In case of greenfield investment, the foreign investor or the Chinese co-investor in the project (e.g., a JV partner) must:

• Conduct a filing with SAMR to establish the company and obtain the company’s business license (upon which the company is deemed to be established).
• Conduct a filing with NDRC under certain circumstances (see the answer to question 2).
• Report certain information to MOFCOM (but in practice such reporting is often conducted directly by SAMR – see the answer to question 2).

In case of acquisition of an existing Chinese company (whether a purely domestic company or an FIE) by a foreign investor, the target company must:

• Conduct a filing with SAMR to report the corporate changes resulting from the acquisition and apply to obtain an updated business license.
• If applicable, conduct a filing with NDRC to report any changes to information previously submitted to NDRC resulting from the acquisition.
• Report certain information to MOFCOM including (if applicable) any change to information previously reported (but in practice such reporting is often conducted directly by SAMR – see the answer to question 2).

In each case, the approval of/record-filing with the competent industry regulator will also have to be obtained/completed if required.

The Chinese FDI rules (including NSR, NDRC filing and MOFCOM reporting) apply regardless of whether the foreign investment is made directly in China or indirectly at the offshore level. But as regards Negative Lists restrictions, these typically apply to the direct ownership of equity interests in Chinese entities (i.e., a change in the equity ownership of an offshore shareholder of a Chinese entity does not generally trigger Negative Lists restrictions – they would be triggered by a change in the direct equity ownership of the Chinese entity).

If an industry sector is closed to foreign investment under the Negative Lists, other avenues for involvement may be available that do not require direct equity participation, such as targeted cross-border cooperation with a qualified domestic capital entity not involving the creation of a legal presence in China or, where greater control is desired, through a contractual control structure such as the one known as Variable Interest Entity (VIE) structure (but it must be noted that the VIE structure occupies at best a grey area in the Chinese legal system: it is not expressly endorsed nor generally prohibited by the law, although it is widely used, particularly in the TMT sector). But in principle a contractual structure like the VIE structure does not allow to circumvent the NSR.

​​​​​NSR

The applicant must submit an application containing a foreign investment report, an investment plan, a statement on whether the foreign investment affects national security, and other materials to the Working Mechanism Office before carrying out the foreign investment.

The Working Mechanism Office conducts a preliminary review within 15 business days to decide if the NSR of the foreign investment is required. If yes, the Working Mechanism Office proceeds to a “standard review” phase of up to 30 business days, to evaluate the impact of the proposed foreign investment on China’s national security. If national security concerns are identified, the case enters the “special review” phase which can take up to 60 business days to complete, and can be followed by an “extended review” phase for which the law does not provide a deadline.

The special review (or extended review, if any) concludes with a decision of:

• Clearance: where the authority decides that the proposed foreign investment does not arouse national security concerns.
• Conditional clearance: where the authority identifies national security concerns and imposes conditions through which they can be eliminated.
• Prohibition: where the authority identifies national security concerns which cannot be eliminated.

Filing with SAMR, MOFCOM, NDRC and industry regulators

SAMR will review whether a foreign investment project falls under the Negative Lists, and if the relevant requirements are met, when it reviews the application for company registration (or registration of the corporate changes resulting from the acquisition) – or such review is conducted by the competent industry regulator if approval from/record-filing with the competent industry regulator is required.

SAMR will not issue the business license required for the establishment of the FIE (or the completion of the acquisition of a domestic company by a foreign investor) until such review has been completed and, if applicable, the NSR and the approval from/record-filing with NDRC and competent industry regulator have been accomplished. The SAMR filing is conducted following the NSR (and, if applicable, following the approval from/record-filing with the competent industry regulator), and can often be conducted simultaneously with the NDRC filing and MOFCOM reporting (depending on local practice). SAMR typically issues the business license within 15 business days of receiving the complete application package (subject to local practice), but the process takes significantly longer to complete if NDRC filings/approvals are required.

As regards the MOFCOM reporting, depending on local practice, the relevant information is reported directly by SAMR, or by the foreign investor through an online reporting system. There is no strict sequential order between MOFCOM reporting and SAMR procedure. In most cases, MOFCOM reporting is done at the same time or after the SAMR procedure. No decision from MOFCOM will be issued. The procedure will be deemed to have been completed upon reporting of the information.

The procedure and timing for the relevant NDRC process depends on whether approval or record-filing is required:

• The NDRC approval procedure involves the submission of a document-intensive application packet by the applicant (including a project application report, various corporate documents and various preliminary review opinions from different agencies, including the relevant departments for land and resources, environmental protection, and energy conservation, where relevant). NDRC approval can take up to 30 business days if extensions are granted (not including the time needed for review opinions or public opinion solicitation, if required). Where approval is granted, NDRC will issue a written approval document. If approval will not be granted, NDRC will state the reasons in writing.
• Record-filing with NDRC is also a document intensive process, but much less so than approval. It is accomplished within seven business days. On completion, the applicant will typically receive a record-filing form evidencing that the process is completed. If the record-filing is rejected, NDRC will issue a written opinion with its comments and stating the reasons.

​​​​​NSR

If the parties concerned are found to have carried out an investment without having made the required NSR filing, or in breach of the conditions imposed by the Working Mechanism Office, the Working Mechanism Office may order them to make the NSR filing, or achieve compliance with the conditions, and in case of failure to abide it may order them to dispose of the equity or assets in the project and take other measures to restore the status quo ante and eliminate the national security impacts.

Negative Lists

In case of investment in a prohibited sector, the foreign investor and the FIE can be ordered to cease all investment activities, dispose of the equity or assets in the project or take other measures within a given time period to restore the status quo ante, and return the unlawful income generated by the investment, and the FIE established by the foreign investor engaging in such unlawful activities may be ordered to shut down.

In case of investment in a restricted sector in violation of the applicable restrictions, the foreign investor and the FIE can be assigned a cure period to restore compliance, failing which the same consequences illustrated above for prohibited investments would apply.

In addition, the investment agreement (e.g., JV agreement, equity transfer agreement, asset transfer agreement) can be invalidated on the grounds that the foreign investment violates the Negative Lists.

Filing with SAMR, MOFCOM, NDRC and industry regulators

SAMR will refuse to process the company registration formalities (e.g., for the establishment of a new FIE, or the acquisition of a target company) unless it is satisfied that the applicable Negative Lists restrictions have been complied with. Conducting business without the proper license is illegal and may result in administrative and criminal penalties.

Failing to complete the MOFCOM reporting may result in fines imposed by MOFCOM. But this is not an issue in practice as typically (subject to local practice) the MOFCOM reporting is made directly by SAMR.

Failing to complete the NDRC approval or record-filing may result in an order to cease project construction. Additionally, without seeing the NDRC approval or record-filing letter, SAMR may refuse to complete the required registrations, and banks may refuse to provide financing for the project.

In all of the above scenarios, the credit record of the foreign investor and the FIE in the SAMR National Enterprise Credit Information Publicity System and any other social credit system (subject to local practice) may also be affected.

​​​NSR

The parties may not complete the investment pending the NSR. The Chinese authorities can investigate any transaction without any limit in time, therefore a transaction that has been closed and is subsequently found to have an impact on national security can be unwound and the other remedies and penalties described above may be imposed (please see question 8).

Negative Lists and filings with Chinese authorities

Failure to comply with the Negative Lists and the approval/filing requirements with SAMR, MOFCOM, NDRC or the industry regulators can result in a violation of the relevant FDI laws and related penalties (please see question 8).

The NSR decision is final, and the law does not contemplate the possibility of an appeal.

If SAMR, NDRC or the industry regulators reject the application of record-filing or approval, the applicant can file again. Additionally, the Negative Lists provide the possibility to apply with the State Council to obtain an exemption from the restrictions applicable to a particular investment.

In general, the Foreign Investment Law of the People’s Republic of China promulgated by the National People’s Congress and effective on 1 January 2020 provides for the establishment of a working mechanism through which foreign investors or FIEs can lodge complaints where they believe the administrative acts of an administrative organ or its employees have infringed upon their lawful rights and interests. The Measures on Handling Complaints from Foreign-invested Enterprises promulgated on 25 August 2020 by MOFCOM provide more details on such mechanism, and requires local people’s governments to establish a working mechanism responsible for handling the complaints. Some local complaint handling working mechanisms have already issued detailed rules. In addition, generally speaking, any administrative decision (other than NSR decision) can be challenged by filing an application for administrative review or bringing an administrative action in accordance with law.

The completion of the NSR and the required filings with the Chinese authorities are typically a condition precedent to the closing of the acquisition, or to the payment of the initial capital contribution to the joint venture. It is also possible to consult with the Chinese authorities to discuss any such requirements.

The Chinese government has not taken special measures to secure protection of national assets in the wake of the COVID-19 pandemic that would negatively affect FDI. To the contrary, while most of the other jurisdictions strengthened their FDI regimes during the COVID-19 pandemic to protect national companies and assets from foreign acquisitions, China continued to open up its market to foreign investment by introducing a series of liberalizations in various sectors (including by issuing new versions of the Negative Lists, establishing new FTZs and the Hainan FTP, and issuing a new version of the Encouraged Investment Catalogue) so as to attract more foreign investment.

FDI enforcement actions or investigations are not public domain in China.

​​​​​​NSR

The NSR regime discussed in this questionnaire is fairly recent. It was introduced by the Measures of Security Review for Foreign Investment jointly promulgated by MOFCOM and NDRC and effective on 18 January 2021 (NSR Measures). The NSR Measures implemented the national security review system referred to in the National Security Law of the People’ Republic of China published on 1 July 2015 by the Standing Committee of the National People’s Congress, China’s first overarching law on national security – a broad brush framework that called for the issuance of further implementing legislation. Compared to the regime in force before the issuance of the NSR Measures, the NSR Measures expanded the scope of security review, revised the NSR procedures (among others, including the possibility to issue a decision of conditional clearance) and introduced specific consequences for noncompliance.

Negative Lists

The latest versions of the National Negative List and FTZ Negative List took effect on 1 January 2022. They are slightly shorter than the previous versions issued in 2021, having opened certain sectors to foreign investment. For example, the 2022 versions reduced the number of “restricted” and “prohibited” sectors by two in the National Negative List (from 33 to 31) and by three in the FTZ Negative List (from 30 to 27). The main changes in the 2022 versions are:

• In both the National Negative List and the FTZ Negative List, the deletion of the restricted sector on automotive manufacturing (this change was expected and in line with the 2020 versions which provided that such restrictions would have been eliminated in 2022) and on the production of satellite television and radio ground receiving facilities and key parts.
• In the FTZ Negative List, additionally, the deletion of the prohibited sector on foreign investment in social surveys (which instead remains a prohibited sector in the National Negative List).

The Hainan FTP Negative List (effective January 1, 2021) is even shorter than the other Negative Lists. Among others, the following sectors, which are still prohibited or restricted under the other Negative Lists do not appear or have explicitly been opened up in the Hainan FTP Negative List:

• Mining of rare earths, radioactive minerals and tungsten.
• The provision of certain legal services of commercial nature (excluding litigation). As regards VATS, the Hainan FTP Negative List also provides the lifting of the restriction on online data processing and transaction processing business, and permits enterprises established and holding service facilities in the Hainan FTP to conduct internet data center and content distribution network business and other business in the Hainan FTP and internationally.

China is expected to continue to open up its market to foreign investment. The 14^th Five Year (2021-2025) Plan provides that China will further improve the foreign investment environment to attract foreign investment particularly in certain key sectors.

On October 26, 2022, NDRC and MOFCOM published a new version of the Encouraged Investment Catalogue (effective on 1 January 2023), which adds 239 items to the 2020 version and is intended to continue to attract foreign investment in three main areas: manufacturing sectors, production-oriented service industries, and regional advanced industries in China’s central, western, and north-eastern regions.

On 13 August 2023, the State Council released a statement outlining its 24-point guidelines regarding further optimizing the foreign investment environment and intensifying efforts to attract foreign investment, from six aspects including improving the quality of foreign capital utilization, guaranteeing the national treatment of foreign-invested enterprises, strengthening the protection of foreign investment, improving the facilitation of investment and operation, increasing fiscal and tax support, and improving ways to promote foreign investment. The statement also encouraged all regions to adopt supporting measures in light of local conditions to enhance policy synergy, and the MOFCOM is expected to strengthen guidance and coordination with relevant departments on policy promotion and implementation.