Protection of Economic Security

protection of Economic Security
The 2006 Regulations add a new screening requirement on cross –border M&A  transactions in which the foreign investor obtains controlling rights of a domestic enterprise if the acquisition :
Involves a major industry ;
Has or may have an impact on national economic security
\May result in the transfer of famous trademarks or traditional Chinese brands;
The lack of definition of terms including ‘major industry ‘,’impact’ on ‘national economic security ‘famous’ trademarks, and ‘traditional ‘Chinese brands appears to render the new screening requirement less than wholly transparent .This may mean that foreign investors seeking to merge with or acquire a domestic enterprises targeted for m&A ,and the Chinese government agencies charged with implementing the new regulations do not have enough information to be able to apply these terms to an actual transaction. Pending the publication of detailed implementing regulations the new screening process may thus have a serious if unintentional discouraging effect on investment.
‘Famous trademarks ‘trademarks’ can be certified by a People’s Court and also by Chinese administrative agencies ,including the Trademark Office of the State Administration for Industry and Commerce . Since People’s Court certifications are not listed publicly ,it is difficult for foreign investors to see whether a trademark falls into the category of ‘famous trademarks ‘It is not usual for developed countries to restrict cross –border mergers or acquisition by reason of ‘famous ‘trademark or ‘traditional brands .
2003 Interim Provisions V 2006 Regulations Set out below are some of the key points of the 2006 Regulations and the changes that have occurred to these points from their inclusion in the 2003 Interim Provisions .