![](media/image1.png)**China Securities Regulatory Commission**

Focus Place, 19 Finance Street, Beijing, P. R. China 100032

Tel: (8610)88061355 Fax: (8610) 66210206

Mr. Nova Daly

Deputy Assistant Secretary

U.S. Department of the Treasury

1500 Pennsylvania Avenue, NW.

Washington, DC 20220

June 6, 2008

**[RE: Comments on *Regulations Pertaining to Mergers, *]{.underline}**

***[Acquisitions and Takeovers by Foreign Persons]{.underline}***

Dear Mr. Daly,

I am writing on behalf of the China Securities Regulatory Commission
(CSRC) and Securities Association of China (SAC) to respond to the
proposed *Regulations Pertaining to Mergers, Acquisitions, and Takeovers
by Foreign Persons* (hereinafter referred to as the *Regulations*)*.*

We have noticed and sincerely welcome that the U.S. government, the
Treasury Department particularly, had articulated on various occasions
the U.S. commitment to maintain an open investment climate to foreign
investors and encouraged mergers, acquisitions and takeovers by foreign
persons. As we understand it, the proposed *Regulations* are aimed to
amend the existing rules and processes so as to facilitate foreign
investment in the U.S.

However, after some careful study, we are afraid the *Regulations* still
include some sections and procedures which reflect the enshrouded
protectionism, an obvious contradiction to the spirit of free
competition the U.S. has championed since long time ago. With a broad
and abstract definition of "national security", the *Regulations* retain
many limits and restrictions for foreigners to conduct M&A in the U.S.,
revealing self-evident hostility to "foreign government-controlled"
transactions. It is most regretful that such discriminatory attitude
will ultimately hurt enthusiasm of foreign investment in the U.S.

We are also concerned, despite the necessary wording, that the
definitions of many key words such as "Control", "Critical
Infrastructure", "Foreign Government- controlled Transaction" remain too
vague and leave too much room for interpretation by the Committee on
Foreign Investment in United States ('CFIUS"), which seems to be
empowered excessive authority and discretion in reviewing notices. We
are afraid that might lead to its abuse of power and obstruction to some
normal and market-driven transactions.

We sincerely hope that the U.S. adheres to the principles of free
competition and national treatment with regard to foreign investment,
and eliminate those discriminative regulations which obviously derive
from the difference of ideology.

More detailed comments to the specific sections of the *Regulations* are
as follows:

§ **800.203 Control.** The definition of the scope of "Control" is too
extensive, as it includes a holding of voting interests of less than 10%
which, alone, normally cannot decide on any important matter of the U.S.
business assuming there are no other relevant facts, such as
directorship in the Board of Directors. Together with the definitions of
"Covered transaction" (section 206) and other relevant definitions,
CFIUS may expand its jurisdiction too extensively. Therefore, it is
advisable to make some changes like "the term *control* means ...or a
dominant minority of the total outstanding voting interest in an entity
which claims to excise the power."

1.  § **800.207 Critical Infrastructure.** The definition of "Critical
    Infrastructure" is too broad, ambiguous and subjective, leaving too
    much discretion for CFIUS and too much uncertainty for foreign
    investors. It will be judicial to itemize in a list those
    infrastructures that fall within the ambit of this provision. It is
    also preferable that fairly clear cut is set between those
    infrastructures within the meaning of this provision and those are
    not.

2.  § **800.211 Entity.** The definition of an "Entity" covers "assets
    operated by any one of the foregoing as a business undertaking in a
    particular location or for particular products or services, even
    though those assets may not be organized as a separate legal
    entity". In connection with Section 301(c) and 302 (d) of the
    *Regulations,* it is not clear what assets can be viewed as an
    entity, and furthermore, a U.S. business. Such ambiguity may create
    uncertainty to some asset acquisition transactions. If the operation
    of a piece of commercial property located in New York can be viewed
    a "U.S. business", the transfer of the title to this property may be
    subject to filing requirement.

3.  § **800.212 Foreign Entity.** Should the term of "Foreign Entity" be
    explicitly defined as " a public company whose equity securities are
    owned directly or indirectly by a foreign government" instead of "by
    foreign nationals"? In addition, a public company "whose equity
    securities are primarily traded on one or more foreign exchanges" is
    basically different from those companies "controlled by foreign
    government", therefore, should not be defined as "foreign entity"..

4.  § **800.214**. **Foreign government-controlled transaction.** Since
    it is not easy to be objective to judge whether a person is
    controlled or not by government, the definition of "Foreign
    government-controlled transaction" would be more sensible if words
    like " a person controlled by or acting on behalf of a foreign
    government" be deleted. The term "foreign government-controlled
    transaction" can be defined as "any covered transaction that could
    result in control of a U.S. business by a foreign government or a
    foreign entity."

5.  § **800.301 Transactions that are covered transactions.** Given the
    definitions of "control", "foreign person" (§ 212), and "U.S.
    business" (§ 227), a transaction outside the U.S. which involves an
    indirect transfer of control of a U.S. business shall, irrespective
    how long the ownership chain is, be subject to CFIUS's jurisdiction.
    This will probably prompt numerous filings flooding to CFIUS. It
    will be advisable to set limits in terms of transaction value, or
    relevant market share etc.

6.  § **800.302 Transactions that are not covered transactions.**
    Transactions that are not covered transactions include " (C) A
    transaction that results in a foreign person holding ten percent or
    less of the outstanding voting interests in a U.S. business (...),
    but only if the transaction is solely for the purpose of
    investment". As above-mentioned, ten percent or less of voting
    interests normally can not prevail in any important operation
    decision. Thereby, it would be better to delete the part of "but
    only if the transaction is solely for the purpose of investment".

7.  § **800.303 Lending transactions.** Terms like "other condition",
    "significant possibility" in paragraph (b) are very ambiguous and
    will subject financing transactions to uncertainty. Further
    clarification of such terms is necessary. In addition, a time frame
    (e.g. one year) on the holding of assets or rights by foreign
    persons seems to be advisable.

8.  § **800.401 Procedures for notice. To** reduce translation burden
    for a party or parties to proposed or completed transaction, only a
    summary of the relevant documents in English for review purpose will
    be more reasonable. Such summary should include essential
    information adequate for the reviewing authority which will have the
    discretion to request additional information in English.

9.  § **Section 800.402 Contents of voluntary notice.** As for the
    "Personal identifier information ", it is unreasonable and
    unnecessary for the members of the board or boards of directors and
    senior executives to disclose "Dates and nature of foreign
    government and foreign military service". Furthermore, notice should
    be accepted within a longer time period (say, ten working days),
    instead of "two working days" after receipt provided that any
    required missing information has been submitted upon request of
    CFIUS.

10. § **800.502 The beginning of thirty-day review period.**
    Paragraph (a) provides "The Staff Chairperson of the committee shall
    accept a voluntary notice the next business day after the Staff
    Chairperson has (1) determined that the notice complies with Section
    402; and (2) disseminating the notice to all members of the
    Committee". However, this provision and the other provisions in the
    *Regulations* are silent on when the CFIUS should accept or reject a
    notice after receipt of the notice provided that such notice is
    complete. It is advisable to clarify the time provisions. Otherwise,
    the risk lies in that the acceptance of a notice filing may be
    delayed at the absolute discretion of the Staff Chairperson, leaving
    the party with no remedy in the *Regulations*.

11. § **800.503 Determination of whether to undertake an
    investigation.** There are no clear and objective standards or
    criteria as to under what circumstances an investigation, following
    the 30-day review, should be undertaken, leaving parties to a
    transaction with no reasonable anticipation of whether an
    investigation will arise. Therefore parties to a transaction have to
    structure their transaction in a long time frame to respond to such
    uncertainty.

12. § **800.702 Confidentiality.** In light of the magnitude of personal
    information collected by CFIUS during its review and investigation,
    the confidentiality provision in the *Regulations* regarding
    protection of such information seems inadequate in the absence of
    clear civil remedies available to the information providers. More
    wording on information protection is deemed necessary and should be
    included in the *Regulations*.

Thank you very much for your consideration. Should you or your office
have any query about our comments, please feel free to contact me
(86-10-88061355, <tongdc@csrc.gov.cn>) or my colleague Christina Yang at
(86-1088061664 or <yangzhy@csrc.gov.cn>).

Sincerely,

Dr. TONG Daochi

Director General, International Affairs