In recent years, China has gradually rolled out the regime of general registration with approval as exception to replace the original case-by-case approval regime with respect to foreign investments. Such significant reform in the regulatory regime was first introduced into free trade zones (“FTZ”) set up by the current central government. On August 30, 2013, the Standing Committee of the National People's Congress authorized the State Council to suspend the approval procedures for the establishment of foreign-invested enterprises (“FIE”) within the Shanghai Pilot FTZ, excluding those subject to scrutiny of market entry as provided for in the law, and accordingly initiated the regime of general registration with approval as exception. On December 28, 2014, such piloting practice was expanded to FTZs in Guangdong, Tianjin, Fujian and etc. Then, after three years of experiment, on September 3, 2016, the Standing Committee of the National People's Congress made the decision to amend four laws on FIEs so as to promote the general registration regime nationwide. For the purpose of implementation, the Ministry of Commerce issued the Interim Administrative Measures for Establishment and Changes of Foreign-Invested Enterprises on October 8, 2016, and revised such measures on July 30, 2017. By operation of the foregoing laws and measures, the general registration regime applies to the establishment and changes of all FIEs across mainland China, inclusive of those converted from Chinese-invested enterprises due to mergers and acquisitions by foreign investors, except for those FIEs that intend to engage in business subject to special administrative measures of market entry.
On the other hand, the Chinese government has formulated a “negative list” as exception to the general registration regime. The negative list sets forth industries and businesses restricted or prohibited for foreign direct investment, as well as certain restricted FIE models in specific industries and/or businesses (for example, foreign investment in certain industry or business shall take the form of Sino-foreign equity joint venture enterprise, or require the Chinese investor being the majority shareholder of the concerned FIE). Any foreign investment in the negative list shall require advance approval by the competent approval authority. While the negative list is updated by the Chinese government from time to time, enumeration can hardly be exhaustive, especially in light of the rapid economic development. Moreover, when making outbound investment in western countries, Chinese enterprises are facing more and more regulatory challenges, restrictions and hurdles in the name of “national security” and/or “anti-monopoly”. Therefore, while implementing the regime of general registration with approval as exception, the Chinese government has strengthened the merger control review regime and the national security review regime on foreign investment. The merger control review regime allows the Chinese authorities to scrutinize concerned foreign investment projects in advance from the perspective of concentrations of business operators, so as to prohibit concentrations that exclude and/or restrict competition in the Chinese market. The national security review regime allows Chinese authorities to scrutinize concerned foreign investment projects in advance from the perspectives of national defense, economic security, social security, and etc., so as to eliminate potential harm to national security that might be caused by foreign investment. The implementation of the above regimes is not only a powerful supplement to the negative list mechanism, but likely also an important means to counterbalance the restrictions and prohibitions other countries use to discourage Chinese investment in the name of national security, etc.