Cross-Border M&A in China: Structuring and the Approvals That Gate Every Deal

Gate one: market access under the Foreign Investment Law

China's Foreign Investment Law (FIL) took effect on January 1, 2020 and anchored the principle of national treatment with a negative list: foreign investors are treated like domestic ones in everything the list does not restrict. The operative list is the Special Administrative Measures (Negative List) for Foreign Investment Access (2024 Version), jointly issued by the NDRC and MOFCOM as Order No. 23, effective November 1, 2024. The 2024 list cut the number of restricted items from 31 to 29 and opened manufacturing to full foreign ownership — but restrictions remain in sectors such as certain telecoms, media and parts of agriculture.

Items on the list are either prohibited or restricted. A restricted item usually requires a Chinese party to hold a controlling stake or a joint venture with specific shareholding ratios. Everything off the list needs only ordinary registration, not a sector approval — but that "only registration" still presupposes the deal has cleared the other two gates.

Gate two: the national security review

The Measures for the Security Review of Foreign Investment (NDRC and MOFCOM Order No. 37), effective January 18, 2021, replaced the earlier fragmented regimes with a single "working mechanism" led by the NDRC. A review is mandatory for foreign investment in military-related industries, or in designated sectors that could affect national security, and the parties themselves may file voluntarily where they think a transaction touches security concerns.

The timetable matters because it cannot be compressed:

• The mechanism decides within 15 working days whether the transaction requires a review;
• A general review is completed within 30 working days;
• If it proceeds to a special review, that runs for 60 working days and may be extended.

A transaction that needs a review cannot be completed until the review is passed — closing first is not an option, and a failed review means the deal must be unwound.

Gate three: merger control

China operates a mandatory, suspensory merger control regime under the Anti-Monopoly Law, enforced by the State Administration for Market Regulation (SAMR). The State Council's 2024 revision of the notification thresholds took effect January 26, 2024, and raised both the global and the China-based thresholds. A filing is triggered where, in the preceding fiscal year:

• the parties' combined worldwide turnover exceeds RMB 12 billion, and at least two parties each have China turnover above RMB 800 million; or
• their combined China turnover exceeds RMB 4 billion, and at least two parties each have China turnover above RMB 800 million.

Below the thresholds, SAMR can still call in a transaction it believes may harm competition. Because the regime is suspensory, the deal must not close until clearance is obtained.

How the structure interacts with the approvals

The three gates shape the deal, not just the closing calendar. A target in a restricted sector may force a joint-venture structure that changes control economics. A target with sensitive technology or data raises the odds of a security review, which in turn changes the signing-to-closing timeline and the risk allocation in the purchase agreement. And the entity doing the acquiring — a China WFOE versus an offshore vehicle — changes which of the parties' turnover counts toward the merger thresholds.

The Company Law (2023 revision, effective July 1, 2024) adds a layer for post-closing governance: five-year capital contribution deadlines, sharper director duties and new transition rules that apply to existing foreign-invested enterprises. Deal counsel should read the target's articles against the new law before fixing the post-closing plan.

Planning the deal around the gates

• Map market access first. The negative list decides whether the transaction is even permissible, and in what structure.
• Run a security-review screen early. A review can be triggered by the sector, the technology or the parties, and it cannot be shortened once triggered.
• Model the merger thresholds on the actual acquiring entity. Thresholds are turnover-based, and the choice of buyer changes the calculation.
• Put the approvals in the condition precedents. Closing before clearance exposes the parties to an unwind and penalties.

Why sequencing is the whole game

A cross-border acquisition in China is rarely blocked by a single regulator; it is slowed by poor sequencing. The parties who price the deal without the security-review timeline, or who pick a structure without checking the negative list, discover the real deal on the far side of a delay they could have designed around. Run the three gates before you run the valuation.