Decision of the Ministry of Commerce on Amending the Provisions on the Merger or Acquisition of Domestic Enterprises by Foreign Investors (Order No. 6 [2009] of the Ministry of Commerce) was promulgated by the Ministry of Commerce on June.22, 2009, which shall be implemented as of the date of promulgation. Meanwhile, the Provisions on the Merger or Acquisition of Domestic Enterprises by Foreign Investors (the “Provisions on MADEFI”) was amended according to this Decision and promulgated anew.

1．The Background of Amending the Provisions on MADEFI

According to the statement by the Ministry of Commerce, the revision of the Provisions on MADEFI is to ensure that the Provisions on MADEFI keep consistent with the Anti-monopoly Law and the Provisions of the State Council on the Standards for the Declaration of Business Concentration.

With the Anti-monopoly Law and the Provisions of the State Council on the Standards for the Declaration of Business Concentration implemented in 2008, issues concerning monopoly are more specific and detailed, and the relevant provisions become more practical. Especially in respect of the Concentration of Business Operators, one examination in the procedure was added, which shifted checkpoint to an earlier stage and introduced a precaution in advance against monopoly risk. Since the Anti-monopoly Law is a national law, in Chinese legal hierarchy it is higher than the Provisions on MADEFI, which is administrative regulation in nature. Thus, the Chapter V “Anti-monopoly Review” of the Provisions on MADEFI has actually become ineffective. In order to clarify and improve the examination and approval system of the merger or acquisition of domestic enterprises by foreign investors, it is necessary to amend the Provisions on MADEFI so that they can keep consistent with the Anti-monopoly Law and the Provisions of the State Council on the Standards for the Declaration of Business Concentration.

2．Amended Provisions

The revision of the Provisions on MADEFI mainly concentrated on the examination of anti-monopoly while other revisions were more expression adjustments than substantial modifications.

(1) Amendments on the Examination of Anti-monopoly

Chapter V “Anti-monopoly Review” of the Provisions on MADEFI had been deleted. A new article had been inserted in the “Supplementary Provisions” as Article 51, “In accordance with the Anti-monopoly Law, if the merger or acquisition of a domestic enterprise by a foreign investor reaches the declaration standards in the Provisions of the State Council on the Standards for the Declaration of Business Concentration, a declaration shall be made to the Ministry of Commerce in advance and no transaction shall be conducted without declaration.”

(2) Amendments to the Wording of Related Articles

(a) The sentences in paragraph 4 of Article 16 “Where a foreign investor establishes a foreign-funded enterprise by merging or acquiring a domestic enterprise, if its capital contribution proportion is less than 25 % of the registered capital of the enterprise and if it plans to make the contribution in cash” had been amended to read as “Where a foreign investor establishes a foreign-funded enterprise by merging or acquiring a domestic enterprise and its capital contribution proportion is less than 25 % of the registered capital of the enterprise, if it makes the contribution in cash.”

(b) The sentences in paragraph 1 of Article 36 “If the domestic and overseas companies fail to finish the equity modification formalities within 6 months as of the date of issuance of a business license, the approval certificate with a remark and the certificate on approval of overseas investment by Chinese enterprise shall be invalidated automatically, and the registration administrative organ shall, according to the equity modification registration application documents submitted by the domestic company in advance, examine and approve the modification registration to restore the equity structure of the domestic company to the state before the merger or acquisition of equities” had been amended to read as: “If the domestic and overseas companies fail to finish the equity modification formalities within 6 months as of the date of issuance of a business license, the approval certificate with a remark and the certificate on approval of overseas investment by Chinese enterprise shall be invalidated automatically. The registration administrative organ shall, according to the equity modification registration application documents submitted by the domestic company in advance, examine and approve the modification registration to restore the equity structure of the domestic company to the state before the merger or acquisition of equities.”

(c) The expression “final controller” as used in subparagraph 1 of paragraph 1 of Article 42 and in subparagraph 3 of paragraph 1 of Article 44 had been replaced by: “actual controller”.