- The special review
If any of the Relevant Bodies believes that the Deal will affect the national security, the Panel shall initiate the special review procedure within 5 business days after it receives this opinion. The Panel will have the Deal be assessed in the aspect of national security and review the Deal based on the assessment report. If the absolute majority of the members of the Panel reach a conclusion (positive or negative), the Panel shall issue its decision. If the members of the Panel hold significantly different opinions on the Deal, the Deal shall be submitted to the State Council for review. In any event, the Panel shall complete the special review within 60 business days after its initiation of the special review. Otherwise, the Panel shall pass on the Deal to the State Council.
During the process of the national security review, the acquirer and the target company has the obligation to cooperate with the Panel on providing the required documents and information and responding to the enquiries. In addition, the acquirer may modify or withdraw the Deal.
The measure to take by the Panel
If the Panel concludes that the Deal has or will affect the national security, it can require the MOFCOM, who will consult and cooperate with the other relevant government authorities, to terminate the Deal, or force the acquirer to transfer its equity, assets or take the other measures for the purpose of eliminating the effect of the Deal on the national security. It seems that the Panel will only let the acquirer know (through the MOFCOM) whether the Deal will affect the national security or not at first. The Panel will issue a separate order or notice to the MOFCOM on what the actions should be taken by the acquirer and the target company. It is anticipated that the MOFCOM will have more saying to the solutions.
Conclusion
The Security Review Rule draws the main roads in the map for the market players and regulators to follow. We can see the progress of China in the transparency of its approval mechanism. We also note that the Security Review Rule excludes its application to the foreign investment in connection with the fixed property investment, transfer of state-owned assets and acquisition of the domestic financial institutions. As we know that Huawei, a Chinese company, has announced to withdraw its plan to buy the assets of 3Leaf following the recommendation of CFIUS on 21 Feb. 2011, it is only 10 days ago that China issued this Security Review Rule. In any event, we do hope that the two nations will not use the “national security” as an excuse to kill the deal in the market of market economy.
