China: Inbound MA Projects Become Easier

Last Updated: 22 December 2017
Article by Ulrike Glueck and Michael Munzinger

According to the Provisional Measures on Management of the Establishment and Changes of Foreign Invested Enterprises ("Provisional Measures 2016") which entered into effect on 8 October 2016, the approval and examination procedures regarding foreign-invested enterprises ("FIE") have generally been replaced by much simpler record-filing procedures, if such FIEs are not listed in a so-called Negative List. This means that since 8 October 2016, the establishment of as well as the implementation of most corporate changes with regard to FIEs, such as but not limited to changes of registered capital, legal address, company name and business scope as well as changes of the shareholding structure and liquidation, are not subject to examination and approval by the competent examination and approval authority, i.e. the competent Bureau of Commerce ("BoC"), anymore but to mere record-filing procedures, if such FIEs are not listed in the so-called Negative List. According to Circular (2016) No. 22, from 8 October 2016 on, for the Negative List, reference had to be made to the Guideline Catalogue on Industries for Foreign Investment.

However, the above mentioned Circular (2016) No. 22 expressly stipulated that the shift from ex-ante approval to (ex-post) record-filing did not apply to the acquisition of shares or assets of a domestic company by foreign investors, i.e. so-called mergers and acquisitions according to the PRC Provisions on the Merger and Acquisition of Domestic Enterprises by Foreign Investors ("M&A Provisions"). Accordingly, M&A transactions according to the M&A Provisions had not been covered by the first round of regulations which shifted FIEs from ex-ante approval to record-filing. Until very recently, they remained to be subject to examination and approval procedures.

This has now changed. On 30 July 2017, the PRC Ministry of Commerce further revised the Provisional Measures 2016 and promulgated the Provisional Measures on Management of the Establishment and Changes of Foreign Invested Enterprises, 2017 Revision ("Provisional Measures 2017") which entered into effect on the same day together with the Announcement on Relevant Matters concerning the Filing Administration of Establishment and Changes of Foreign-Invested Enterprises ("Announcement 2017/37"). The key changes are as follows:

1. According to the Provisional Measures 2017 and Announcement 2017/37, now also the transformation of a purely domestic company into a FIE by way of a M&A transaction according to the M&A Provisions is only subject to the simplified record-filing procedures, if the FIE into which such domestic company is transformed does not fall into the Negative List of the new Guideline Catalogue on Industries for Foreign Investment (2017 Revision) ("Guideline Catalogue 2017"). It is further stipulated that if the basic information regarding a M&A transaction and the related transformation of the target into a FIE, such as the payment method, the purchase price and the assessed value of the equity interests, change, the representative or agent of the FIE shall fill in and submit an online application regarding such changes to the competent BoC within 30 days from occurrence of such change. The above represents a remarkable change. Since 30 July 2017, now also M&A projects are subject to mere record filing, if the target to be transformed to a FIE does not fall into the Negative List.

However, the new Guideline Catalogue 2017 which entered into effect on 28 July 2017, expressly stipulates that so-called roundtrip investments, i.e. an acquisition of a domestic entity by a domestic entity or individuals using a company legally established overseas or controlled by domestic shareholders as an investment vehicle, shall be handled pursuant to the prevailing provisions. I.e. roundtrip investments are currently still subject to examination and approval procedures.

2. The Provisional Measures 2017 and the Announcement 2017/37 also clarify that foreign investors, which make strategic investments to qualified non-foreign-invested listed companies, or to qualified foreign-invested listed companies (i.e. those which do not fall into the Negative List of the Guideline Catalogue 2017), within the scope prescribed in the Provisional Measures 2017, also only have to handle record-filing procedures. According to the Administrative Measures on Strategic Investment in Listed Companies by Foreign Investors, the term "strategic investment" refers to the acquisition of "A" shares in listed companies by foreign investors through medium- and long-term strategic merger and acquisition investments of a certain scale.

The filing shall be made 30 days before or after registration with the securities registration and clearing organization. Upon completion of the filing, where there is a change regarding the filing information regarding strategic investments, such changes shall be submitted for filing within 5 days from performance of the information disclosure obligations by the information disclosure obligor(s) as required by the PRC Securities Law and the relevant provisions.

3. While the procedures for M&A transactions and for strategic investments in listed companies have generally been simplified, there have also been some additions to the documents to be submitted to the competent PRC authorities:

- A shareholding structure chart indicating the ultimate actual controlling party of the FIE, i.e. the domestic target after its transformation, has to be submitted, if a FIE or its investors apply for record-filing of the transformation or corporate changes of such FIE. When there is no change of the ultimate actual controlling party of the FIE, such shareholding structure chart is not required;

- If a foreign investor uses equity interests of an overseas company for payment, i.e. in case of a share swap, the Enterprise Overseas Investment Certificate of the domestic enterprise which obtains the equity interests in the overseas company shall be provided.

4. The "Application Form for Filing of the Establishment of Foreign-invested Enterprises" and the "Application Form for Filing of Changes of Foreign-invested Enterprises" have been replaced by updated standard forms which are attached to Announcement 2017/37.


In summary, now, examination and approval is basically only required for M&A transactions and for strategic investments in listed companies which fall into the scope of the Negative List and for roundtrip investments.

The Provisional Measures 2017 and the Announcement 2017/37 constitute a major breakthrough for M&A projects and for strategic investments in listed companies and considerably simplify and shorten the timeframe for these projects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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