1. Direct Answer: M&A and the Negative List System

No, M&A activity by foreign investors is not on China’s negative list as a general category. The Special Administrative Measures for Foreign Investment Access (外商投资准入特别管理措施, wàishāng tóuzī zhǔnrù tèbié guǎnlǐ cuòshī) — commonly called the Negative List — does not single out “mergers and acquisitions” as a prohibited or restricted activity. Instead, the list applies a sector-by-sector approach: if a foreign investor acquires a Chinese company in a sector not listed as prohibited or restricted, the M&A transaction faces no additional foreign ownership cap under the Negative List itself. However, approximately 31 sectors and sub-sectors remain restricted or prohibited as of the 2025 edition, and every foreign-invested M&A deal in China must navigate a parallel set of regulatory hurdles — antitrust merger control, national security review, and sector-specific licensing — that operate independently of the Negative List. This article unpacks how the Negative List interacts with M&A, which sectors carry caps, what review thresholds trigger mandatory filings, and how recent 2024–2026 legal reforms are reshaping the landscape.

1. Direct Answer: M&A and the Negative List System

The Foreign Investment Negative List (外商投资准入特别管理措施, wàishāng tóuzī zhǔnrù tèbié guǎnlǐ cuòshī) is a catalogue issued by the National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) that specifies which economic sectors are off-limits or subject to ownership caps for foreign investors. It was first introduced in its current form in 2017 and has been updated annually or biennially since. As of the 2025 edition, total restricted/prohibited items have fallen from over 60 in 2017 to roughly 31 today — a steady liberalisation trend.

Foreign M&A transactions in China are governed by the PRC Foreign Investment Law (中华人民共和国外商投资法, Zhōnghuá Rénmín Gònghéguó Wàishāng Tóuzī Fǎ), effective 1 January 2020, which replaced the three prior foreign-invested enterprise (FIE) laws. Article 4 of the Foreign Investment Law establishes the Negative List as the primary instrument for foreign access restrictions. Article 28 then provides the enforcement teeth: foreign investors are prohibited from investing in sectors on the prohibited list, and in restricted sectors the investor must satisfy the listed conditions (e.g., a maximum equity stake). Any investment that circumvents these requirements — including through M&A structures such as VIE arrangements — is subject to rectification orders and penalties under Articles 36–38.

The critical point for M&A practitioners is this: the Negative List does not ban or restrict “M&A” as a transaction type. It restricts foreign investment in specific sectors. If the target company operates in an unrestricted sector, the Negative List imposes no additional foreign ownership cap on the acquirer. If the target operates in a restricted sector, the cap applies regardless of whether the investment comes via greenfield setup, equity acquisition, asset purchase, or share swap. This makes the sector classification of the target company the single most important due diligence question in any cross-border M&A deal in China.

2. Regulatory Basis: Laws, Rules, and Regulators

M&A by foreign investors in China sits at the intersection of several overlapping regulatory regimes. The key instruments are:

1. PRC Foreign Investment Law (2020) — Articles 4, 28, and 36–38 form the statutory backbone. Article 4 mandates the Negative List; Article 28 requires compliance; Articles 36–38 prescribe penalties for violations, including orders to unwind transactions and fines of up to RMB 5 million.
2. Negative List (2025 Edition) — The latest iteration, published by NDRC and MOFCOM. It contains 31 restricted/prohibited items across agriculture, manufacturing, and services. Notably, the 2025 edition removed restrictions on value-added telecom in certain free-trade pilot zones and further opened manufacturing (e.g., full foreign ownership in printed circuit board and certain pharmaceutical manufacturing).
3. MOFCOM Antitrust Merger Control (反垄断审查, fǎnlóngduàn shěnchá) — Under the PRC Anti-Monopoly Law (Articles 20–31) and the Regulations on Notification of Concentrations of Undertakings (2022 revision), any M&A transaction that meets turnover thresholds must be notified to SAMR (State Administration for Market Regulation, which absorbed MOFCOM’s anti-monopoly review function in 2018). Thresholds are detailed in Section 4 below.
4. National Security Review (外商投资安全审查办法, wàishāng tóuzī ānquán shěnchá bànfǎ) — Effective 18 January 2021, this 23-article regulation establishes a mandatory national security review for foreign investments that could affect national security. It covers defence, critical infrastructure, key technologies, sensitive personal data, and critical information infrastructure. The review is conducted by the Foreign Investment Security Review Working Mechanism under NDRC. Unlike the Negative List, this review can apply even in sectors that are fully open — the key trigger is the nature of the target’s business, not the sector cap.
5. Company Law (2024 Revision) — Effective 1 July 2024, this overhaul of China’s corporate legislation introduced significant changes affecting M&A: simplified capital reduction procedures (Article 225), enhanced creditor protection in mergers (Articles 219–222), and stricter fiduciary duties for directors and controlling shareholders (Articles 180–192), which have implications for post-merger governance integration.
6. Sector-specific regulators — Depending on the target’s industry, additional approvals may be required from the China Banking and Insurance Regulatory Commission (CBIRC), the China Securities Regulatory Commission (CSRC), the Ministry of Industry and Information Technology (MIIT), the National Health Commission (NHC), or provincial counterparts.

3. Negative List Categories Affecting M&A

The Negative List divides foreign investment restrictions into two columns: Prohibited (禁止外商投资, jìnzhǐ wàishāng tóuzī) and Restricted (限制外商投资, xiànzhì wàishāng tóuzī). The practical effect on an M&A transaction depends entirely on which column the target company’s business falls into.

3.1 Prohibited Sectors

Foreign investors cannot acquire any equity or assets in companies operating in prohibited sectors through any transaction structure, including M&A. Prohibited sectors as of 2025 include:

• News media, publishing, broadcasting, and audio-visual content production (with narrow exceptions for joint ventures in certain content types)
• Compulsory education institutions (primary and secondary schools)
• Human gene editing, human embryo technology, and related biotechnology
• Certain mining activities including rare earth mining and smelting (though downstream processing and applications are open or restricted)
• Traditional Chinese medicine processing (decoction pieces and ready-to-use prepared medicines), with limited exceptions
• Operations of internet news, online publishing, online audio-visual, and internet culture services
• Social survey organisations (民意调查, mínyì diàochá)
• Postal services for domestic letter delivery

Attempting to acquire a Chinese company through an offshore VIE structure to circumvent a prohibition is now explicitly subject to Article 28 of the Foreign Investment Law and can result in orders to unwind the transaction.

3.2 Restricted Sectors

In restricted sectors, foreign investors may acquire Chinese companies but must comply with specific conditions — most commonly a maximum equity cap. Key restricted sectors relevant to M&A include:

• Value-added Telecommunications — Foreign ownership capped at 50% (up from the historic 50% cap, but with pilot zones now permitting up to 100% for certain value-added services under the 2024–2025 pilot programme in select free-trade zones)
• Automotive Manufacturing — Full foreign ownership is now permitted for passenger vehicle manufacturing as of 2022, but certain conditions apply for new energy vehicle (NEV) production qualification; for commercial vehicles, the cap was removed in 2022 as well
• Insurance Companies — Life insurance joint ventures require foreign ownership to not exceed 50% (other insurance lines are fully open)
• Securities, Futures, and Fund Management — Foreign ownership limits were removed in 2021, but operational conditions (capital requirements, scope of business) still apply
• Education (higher education and vocational training) — Foreign majority ownership is permitted but the institution must be Sino-foreign cooperative (中外合作办学, Zhōngwài hézuò bànxué) with compulsory Chinese curriculum components
• Medical Institutions — Foreign ownership is permitted up to 100%, but establishment requires provincial health commission approval and meets minimum capital requirements
• Air Transport — Foreign ownership of airlines capped at 49% and the chairman must be a Chinese national

4. M&A Review Thresholds

Even when a sector is fully open and no Negative List restriction applies, three independent review regimes may be triggered by a foreign M&A transaction in China:

4.1 Antitrust Merger Control (SAMR)

Under Articles 20–31 of the PRC Anti-Monopoly Law, a concentration of undertakings (which includes M&A) must be notified to SAMR if it meets any of the following turnover thresholds (Regulations on Notification of Concentrations of Undertakings, 2022, Article 3):

If the target’s annual turnover does not meet these thresholds, no SAMR merger filing is required — though voluntary notification is always available. The average review timeline for simplified cases is 30–45 days; complex cases can extend to 120–180 days. Failure to notify a notifiable concentration carries penalties up to RMB 5 million (Article 58, Anti-Monopoly Law 2022 amendment) and potential orders to unwind the transaction.

4.2 National Security Review

The Foreign Investment Security Review Regulations (外商投资安全审查办法, wàishāng tóuzī ānquán shěnchá bànfǎ, 2021) mandate a compulsory declaration for foreign investments — including M&A — that involve:

• Defence and military-related industries (any investment, regardless of size)
• Critical infrastructure (energy, transport, water, telecommunications, data services, and key information infrastructure)
• Key technologies (advanced materials, AI, semiconductors, cybersecurity, quantum computing, aerospace, biotechnology — as published by the Ministry of Science and Technology)
• Sensitive personal data — investments that could acquire control over a company holding the personal data of more than 1 million users or sensitive data of Chinese citizens

The review is conducted in two stages: a preliminary review (≤ 30 days) and, if triggered, a general review (≤ 60 days, extendable by 60 days). The 2024 revision expanded the scope to include “contingent control” — offshore SPVs or contractual arrangements (including VIEs) that give a foreign investor de facto control over a Chinese entity in a security-relevant sector.

4.3 Sector-Specific Approvals

In addition to the above, M&A in regulated industries may require pre-approval from the sector regulator before the transaction can close. Financial services M&A — acquisition of a bank, insurance company, or securities firm — requires CBIRC or CSRC approval. M&A of a telecom licensee requires MIIT consent. Healthcare M&A involving hospitals requires NHC approval at the provincial or national level depending on hospital tier. These approvals operate on timelines that can range from 3 to 12 months and are independent of Negative List compliance.

5. Sector-by-Sector Breakdown

Note: This table reflects the 2025 Negative List. Free-trade zone (FTZ) pilot programmes may offer more liberal conditions in certain sectors. Always verify the latest edition of the list and relevant pilot policies before structuring a deal.

6. Special Cases in Foreign M&A

6.1 VIE Structures (可变利益实体, kěbiàn lìyì shítǐ)

The Variable Interest Entity (VIE) structure has historically been used by foreign investors to gain exposure to prohibited or restricted Chinese sectors (e.g., internet platforms, education) through contractual arrangements rather than direct equity ownership. Under the Foreign Investment Law (Article 28) and the 2021 Security Review Regulations, VIE arrangements are now subject to the same Negative List compliance requirements as direct equity investment. The 2024 Company Law revision further strengthened enforcement by codifying “de facto control” rules (Articles 180–192) that could recharacterise VIE contractual control as de facto ownership. As of 2025, SAMR and the Security Review Mechanism have examined at least five notable M&A transactions involving VIE structures, requiring structural modifications in two cases. Investors considering VIE-based M&A should seek explicit regulatory comfort — the era of unregulated VIE structures is over.

6.2 Takeover of Listed Chinese Companies

Acquiring a Chinese A-share listed company through M&A triggers additional layers beyond the Negative List. The Measures for Strategic Investment by Foreign Investors in Listed Companies (2024 revision) govern foreign strategic investment in A-shares. Key requirements: the investor must have material assets or management experience (at least US$100 million in total assets or US$500 million in asset management under management in the preceding year), a minimum 10% post-acquisition stake, and a 12-month lock-up period. Cross-border share swaps are now permitted as consideration under the 2024 amendments, which was a significant liberalisation. The CSRC approval timeline typically ranges from 3 to 6 months.

6.3 Industry-Specific M&A Rules

Financial services M&A involves the most complex approval matrix. Acquiring a Chinese commercial bank requires CBIRC approval, which assesses the acquiring entity’s financial health, business reputation, and strategic fit under the Measures for Equity Management of Commercial Banks (2021). Education M&A in the compulsory sector is entirely prohibited; in higher education, the cooperative education rules require that Chinese-foreign cooperatively run schools maintain at least one-third of the board or governance body as Chinese representatives under the Regulations on Chinese-Foreign Cooperation in Running Schools (2003, amended). Healthcare M&A has been liberalised significantly since 2023, with provincial health commissions now authorised to approve foreign majority-owned hospitals up to the Class B tier (second-tier public hospital equivalent), with Class A and tertiary requiring NHC level review.

7. Process Overview: Steps for Foreign M&A in China

A typical foreign-invested M&A transaction in China follows the structured process below. Each step is governed by a distinct legal framework, and the sequence matters: early sector classification prevents wasted effort on a prohibited deal.

1. Step 1: Sector Classification Check — Classify the target company’s principal business activities against the latest Negative List (2025 edition). Determine whether the sector is prohibited, restricted (with conditions), or open. Engage a qualified Chinese law firm for this step; self-classification is dangerous due to the granularity of the list (e.g., “internet culture services” vs. “software development” can be the difference between prohibition and full openness).
2. Step 2: Antitrust Notification Analysis — Calculate the combined global and China turnover of the acquirer and target. File a SAMR concentration notification if any threshold in Section 4.1 is met. Prepare a Simplified Procedure filing where possible. The notification should be submitted prior to signing definitive agreements in most cases (though post-signing pre-closing filing is also common in China).
3. Step 3: National Security Review Assessment — Evaluate whether the target business touches any of the security review triggers: defence, critical infrastructure, key technologies, or sensitive data (≥ 1 million users). If any trigger is present, submit a voluntary declaration to the Foreign Investment Security Review Working Mechanism. The review desk is increasingly proactive — recent 2024–2025 enforcement actions include SAMR referring three transactions to the security review mechanism sua sponte.
4. Step 4: Sector Regulator Approval (if applicable) — Submit applications to the applicable sector regulator: CBIRC (financial services), MIIT (telecom/data services), CSRC (securities), MOE (education), NHC (healthcare), or CAAC (aviation). Timeline varies from 30 days (provincial NHC) to 180+ days (CBIRC for bank acquisitions).
5. Step 5: MOFCOM/SAMR Foreign Investment Registration — Under the Foreign Investment Law (Articles 29–34), foreign-invested enterprises must complete registration with the local MOFCOM/SAMR authorities. This is a streamlined information filing (not an approval) for open sectors. For restricted sectors, the registration system verifies compliance with Negative List conditions before issuing the Foreign Investment Registration Certificate.
6. Step 6: Transaction Closing and Post-Closing Filings — Execute the share transfer or asset purchase agreement, obtain the updated business licence from SAMR, and within 30 days register the investment with the local MOFCOM/SAMR foreign investment information report system. For restricted sectors, evidence of compliance with the cap conditions must be submitted with the registration.

The entire process typically takes 3 to 12 months depending on the sector, complexity of antitrust review, and whether a full security review is triggered. Prohibited sector M&A will be stopped at Step 1 — no workaround exists under current law.

8. Recent Changes: 2024–2026 Updates

The legal landscape for foreign M&A in China has undergone significant change in the 2024–2026 period. Below are the most impactful developments:

• Company Law 2024 Revision (effective 1 July 2024) — This is the most comprehensive overhaul since 2005. For M&A, key changes include: (a) a new simplified merger procedure (Article 225) allowing cash-out mergers of wholly owned subsidiaries without a shareholder vote for the parent company; (b) enhanced creditor protection in mergers — creditors can demand repayment or security within 45 days of merger announcement (Article 219–222); (c) stricter fiduciary duties for directors, supervisors, and senior management, including a duty of loyalty and a duty of care codified for the first time (Articles 180–192), which affects post-M&A integration governance; and (d) a five-year capital contribution period for limited liability companies (Article 47), which impacts acquisition financing structures.
• 2025 Negative List Update — Published in late 2024 for 2025 implementation, the latest edition reduced restricted items from 33 to 31. Key changes: (a) full removal of restrictions on printed circuit board manufacturing; (b) removal of restrictions on pharmaceutical manufacturing for certain chemical drugs (catalogue published by NMPA); (c) expansion of FTZ pilot zones allowing up to 100% foreign ownership in value-added telecom services from the original 4 zones to 12 zones; (d) clarification that VIE structures are subject to the same sector restrictions as direct equity investments — a de facto codification of existing enforcement practice.
• National Security Review Expansion (2024–2025) — The Foreign Investment Security Review Regulations were amended in 2024 to: (a) expand the scope of “key technologies” to include artificial intelligence model training, quantum computing, semiconductor design and manufacturing, and advanced materials; (b) introduce de facto control assessment for offshore acquisition structures (SPVs, VIE, contractual arrangements); (c) lower the data trigger threshold from personal data of >1 million users to any amount of “sensitive personal data” regardless of volume — a significant broadening that captures many technology start-ups with limited data footprints but sensitive datasets (health, biometric, financial).
• Anti-Monopoly Law 2022 Amendments — Enforcement Trends (2024–2026) — Though the AML amendments took effect in 2022, their enforcement in M&A contexts has matured through 2024–2025. SAMR has increasingly imposed behavioural remedies (rather than structural divestitures) in technology sector M&A. In 2025, SAMR published new guidance on the “killer acquisition” doctrine — acquisitions of innovative early-stage companies by dominant firms — which may require notification even where turnover thresholds are not met if the target has a high valuation and the acquirer holds over a 30% market share in a related market. This is directly relevant to foreign acquirers of Chinese AI and biotech start-ups.
• Data Security and Cross-Border Data Transfer Rules (2024–2026) — The Personal Information Protection Law (PIPL, 2021) and Data Security Law (DSL, 2021) continue to affect M&A due diligence and post-merger integration. In 2024, the Cyberspace Administration of China (CAC) published updated rules exempting M&A-related data transfers from certain assessment requirements where the data is limited to due diligence purposes and is not retained post-transaction. This has eased a significant bottleneck for foreign acquirers conducting pre-M&A data room reviews. However, post-closing integration — particularly transferring Chinese employee or customer data to the acquirer’s global systems — still requires PIPL-compliant cross-border transfer mechanisms (standard contractual clauses, security assessment, or certification).

The overall direction of travel is clear: China continues to open most manufacturing and many service sectors to foreign M&A, while tightening the regulatory screws in areas deemed sensitive for national security, data protection, and technology sovereignty. The number of restricted sectors has declined steadily, but the burden of proving compliance — through security review, antitrust notification, and sector licensing — has increased for any M&A transaction that touches a sensitive business line. Foreign investors should budget for regulatory advisory costs of RMB 500,000 to RMB 2 million for a mid-complexity M&A deal, with timeline contingencies of at least 3 to 6 months.

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