EXTENSION TO 2023 OF THE LOWERING OF THE THRESHOLD FOR IEF CONTROL OF FRENCH LISTED COMPANIES
From a restrictive policy in the European Union to a policy favourable to foreign investment in China
1) The law of 28 December 1966 on foreign financial relations established the first legislative framework for controlling foreign investment in France. With the aim of reconciling the imperatives of public order, public security and national defence with the opening up of France to foreign capital, this law established the principle of freedom of financial relations between France and foreign countries, which is now codified in article L 151-1 of the French Monetary and Financial Code. It should be noted that this law empowered the Government to make the establishment or liquidation of foreign investments in France subject to declaration, prior authorisation or control by decree.
A system of prior declaration was introduced by the decrees of 27 January 1967 and 4 August 1980 (which introduced the concept of a sector in which the Minister’s right to defer does not apply to investments from other European Union Member States). The decree of 15 January 1990 introduced a system of tacit authorisation, leading to a system of prior authorisation with the introduction of a system of injunctions and penalties, followed by control thresholds for investments in excess of 25%.
2)As a result of the health crisis linked to the Covid-19 epidemic, Decree no. 2020-892 of 22 July 2020 temporarily lowered the foreign investment control threshold from 25% to 10% until 31 December 2020.
Subsequently, Decree No. 2021-1758 of 22 December 2021 extended the application of this reduced threshold until 31 December 2022. Decree no. 2022-1622 of 23 December 2022 further extended the period of application of the decree of 22 July 2020 by one year, until 31 December 2023. This extension decision was published in the French Official Journal on 24 December 2022 (JO RF, 24 déc. 2022, texte n° 16). In a press release, the Ministry of the Economy, Finance, Industrial and Digital Sovereignty explained that this measure had been taken because of the economic context linked to the energy crisis.
To understand the control mechanism in France, we will review the principles and texts governing the control of foreign investments in France (1) as well as the conditions for setting up the procedure for the eligibility of Foreign Investments in France (2).
Finally, as European regulations are directly applicable in France, a comparative analysis will be carried out between the European Union’s restrictive policy on foreign investment and the policy favourable to Chinese foreign investment (3).
1. Principles and regulations :
According to article L 151-3 of the Monetary and Financial Code, foreign investments in an activity in France that participates in the exercise of public authority or that falls within the list of activities set out in article R 151-3 of the Monetary and Financial Code must obtain prior authorisation from the Minister for the Economy. Article R 151-2, 3° specifies that this includes situations where an investor (within the meaning of article R 151-I) crosses, directly or indirectly, alone or in concert, the threshold of 25% ownership of the voting rights of a listed company governed by French law.
It should be noted that the activities referred to in Article R 151-3 of the Monetary and Financial Code are as follows:
Activities relating to arms, munitions, powder and explosive substances intended for military purposes or to war material and the like;
Activities relating to dual-use items and technologies listed in Annex IV to Council Regulation (EC) No 428/2009 of 5 May 2009;
Activities carried out by entities holding national defence secrecy;
Activities carried out in the information systems security sector, including as a subcontractor, for a public or private operator managing vitally important installations;
Activities carried out by entities that have entered into a contract, either directly or by subcontracting, on behalf of the Ministry of Defence for the production of a good or service relating to a sensitive activity;
Cryptology activities;
Activities relating to technical equipment or devices capable of intercepting correspondence or designed for the remote detection of conversations or the capture of computer data;
Activities relating to the provision of services by assessment centres approved under the conditions laid down in Decree no. 2002-535 of 18 April 2002 relating to the assessment and certification of the security offered by information technology products and systems;
Gambling activities – except casinos;
Activities designed to counter the illicit use of pathogenic or toxic agents in terrorist activities;
Activities involving the processing, transmission or storage of data, the compromise or disclosure of which is likely to affect the exercise of sensitive activities;
Activities relating to infrastructure, goods or services that are essential to guarantee:
Energy supply;
Water supply;
Operation of transport networks and services;
Space operations;
Operation of electronic communications networks and services;
The missions of the national police, the gendarmerie, civil security services, as well as the public security missions of customs and those of approved private security companies;
The operation of establishments, installations and works of vital importance within the meaning of the Defence Code (and their information systems);
Protecting public health;
Food safety;
Publishing, printing or distributing political and general information press publications.
Research and development activities in critical technologies (cybersecurity, artificial intelligence, robotics, additive manufacturing, semiconductors, quantum technologies, energy storage and biotechnologies and technologies involved in the production of renewable energy);
Research and development on dual-use goods and technologies.
2. Cumulative conditions for implementing the IEF procedure:
The IEF (Investissements Étrangers en France) procedure will apply to a foreign investment if three conditions are cumulatively met:
2.1. Condition relating to the investor:
This condition applies to any natural person of foreign nationality or any French natural person not resident in France for tax purposes. It also applies to any entity governed by foreign law or French law controlled by an entity governed by foreign law or an individual of foreign nationality.
All persons and entities in the investor’s chain of control (direct or ultimate controlling) are considered investors under these regulations (article R. 151-1 of the Monetary and Financial Code).
2.2 Condition relating to the nature of the planned transaction:
The investment must correspond to one of the transactions defined in article R. 151-2 of the Monetary and Financial Code. These transactions include :
The acquisition of control, in accordance with article L. 233-3 of the French Commercial Code, of an entity governed by French law, whether or not the foreign investor is European.
The total or partial acquisition of a branch of activity of an entity governed by French law, whether or not the foreign investor is European.
Crossing, directly or indirectly, alone or in concert, the threshold of 25% of the voting rights of an entity governed by French law, but only when the investor is from outside the European Union.
2.3 Condition relating to the nature of the target company’s business:
The investment must involve an entity incorporated under French law carrying on a sensitive business, which falls within the areas specified in article L. 151-3 of the Monetary and Financial Code and at regulatory level in article R. 151-3 of the same code.
If one of these conditions is not met, the investment is not subject to authorisation.
3. Comparison between regulations on foreign direct investment in the European Union and China: from the protection put in place by the European Union to protect strategic sectors to China’s liberal and transparent system
March 2019 saw the adoption of reforms to the framework applicable to foreign direct investment (FDI) in China and the European Union (EU).
3.1 In China, the 3 laws adopted during the DENG Xiaoping era on FDI in China[1] can no longer respond to China’s changing economic situation as it strives to build new projects and further open up its economy.
At the second session of the 13th National People’s Congress on 15 March 2019, the Foreign Direct Investment Law (中华人民共和国外商投资法) was approved. The aim of this law is to relax the rules governing foreign direct investment in China and to treat FDI in China “almost equally” with local players.
This means that a so-called “negative list” sets out the sectors in which foreign direct investment is prohibited or controlled. The law came into force on 1 January 2020 and aims to create a uniform framework for FDI in China while promoting the rights of foreign investors. According to Article 4 of the law foreign enterprises will now receive “pre-establishment national treatment” (准入前国民待遇), (i.e. without distinction of treatment based on nationality.
In addition, a negative list management system (负面清单) has been introduced, which radically changes the previous laws that introduced a “case-by-case” regime, thus introducing a liberal system and a principle of transparency.
Unlike the situation in France or the EU, companies will not be regulated according to their direct ownership, but according to who controls them. As a result, foreign companies in China controlled by Chinese nationals will be considered Chinese. The aim of this system is to create a predictable and transparent commercial framework for international investors, while at the same time protecting their interests and rights. It also guarantees equitable treatment at national level and fair market conditions.
Articles 9 to 19 of the Act provide for the promotion of foreign investment; Articles 20 to 27 for the protection of foreign investment; Articles 28 to 53 for the management of foreign investment; Articles 36 to 42 on legal liability and annexes.
It should be recalled that the draft law was first reviewed by the Standing Committee of the National People’s Congress on 23 December 2018, when China was in the midst of a trade war with the United States.
3.2. In the European Union, the new Regulation (EU) No 2019/452 was published on 21 March 2019 in the Official Journal of the EU. This regulation establishes a framework for the screening of foreign direct investment in the Union. It will enter into force on the twentieth day following its publication and will apply from 11 October 2020. This regulation applies directly in all Member States of the European Union, which is the most important destination for foreign direct investment, most of which comes from emerging products.
Chinese investment in the European Union has increased sevenfold, particularly in the new technology sectors. This has prompted the EU to introduce new regulatory frameworks for filtering.
The aim of the new Regulation is to establish cooperation between Member States through the exchange of information, with the creation of a support system for filtering foreign investment for reasons of security and public order.
The Regulation encourages international cooperation on FDI screening, including the sharing of experience and information on issues of common interest.
In addition, the European Commission can issue opinions on FDI in several Member States that could have an impact on programmes of general interest to the EU[2].
Although it is up to the Member States alone to decide whether to authorise foreign investment on their territory, the European Regulation aims to protect strategic sectors such as energy, water, transport, telecommunications, data, media, space, finance, semiconductors, artificial intelligence, robotics, health, biotechnology, technology, defence and food safety.
Chinese companies have stakes in a wide range of critical European infrastructures, including ports, airports, electricity companies, wind and solar farms and telecommunications companies. Despite the drastic measures put in place by the European Union, Chinese companies now own stakes in port terminals in EU countries (in Greece, Italy, Portugal, Spain, Belgium, the Netherlands and Germany, as well as in airports such as Toulouse in France).
Although the European Union is worried about China investing in key infrastructure on the European continent, the real concern is digital technology, where Europe is dependent on Chinese technology, as well as electricity networks, renewable energies and telecommunications, a situation favoured by interconnected transnationals. China is now the subject of discussions between the 27 Member States of the European Union, which see China not only as a partner in climate change issues, but also as a frontal competitor. The Member States are worried about allowing China to invest in their infrastructure, whereas they believe that China would never allow a European company to do the same.
Only time will tell. In any case, China today has a liberal system of transparency for foreign investment, while Europe is strengthening its protection, the avowed aim of which is to protect its strategic sectors.
[1] – Sino-Foreign Equity Joint Venture Enterprise Law (1979) (中外合资经营企业法),
– law on foreign-owned contractual JVs (1988) (中外合作经营企业法),
– Wholly Foreign Owned Enterprise – WFOE (1986) (外资企业法).
[2] If the Regulation had existed in 2016, the Chinese conglomerate COSCO in the port of Piraeus in Greece would certainly have been the subject of an opinion from the European Commission. Indeed, China’s interest in European ports was one of the reasons why the Regulation was adopted.
About the Author:
Me Yadhira STOYANOVITCH is a Doctor of Laws. She holds a DEA in Special Private International Law (International Business and Contracts). She is a graduate of Higher Studies in European and Community Law (European Institute of Advanced International Studies).
After nearly 10 years of professional experience as a Researcher on the Legal Protection of Biotechnology (Ministry of Research and Higher Education) and a corporate lawyer (Head of the Legal and General Affairs Department of ADEME), she created her firm in 1992 and joined the Paris Bar.
She is specialized in Business Law and International Contracts, Construction and Real Estate Law, International Family Law, Environmental Law (treatment and disposal of industrial waste) and Energy (energy production, new and renewable energies, self-production and cogeneration).
She is in charge of training at ESTP (Special School of Public Works and Building) and INSTN (National Institute of Nuclear Sciences and Techniques). She is also an Agent in Real Estate Transactions.
She is bilingual French-Spanish and fluent in English and Italian.
Me Yadhira STOYANOVITCH is President of ALTER EGO MEDIATION, ARTHESIS FORMATION, and ITINERANTS SANS FRONTIERE. She is a member of the Office of the Club Business BTP IMMO of Nice.
Comments