China airs pilot free-trade zone national security rules for foreign investment

Beijing yesterday unveiled pilot national security vetting rules for foreign investors who plan to have a stake in sensitive sectors in the country’s four free-trade zones.

The pilot vetting rules, which will be effective early next month in the four FTZs, come as the government drafts a Foreign Investment Law, which would empower the government to broaden its ability to review incoming foreign investments for national security threats.

Under the FTZ pilot rules, investments by foreign companies will be strictly reviewed if they involve a controlling stake of any business deemed vital to national defence, the economy, social order, culture, the internet and other sensitive technological research areas.

A joint committee with representatives from the National Development and Reform Commission, Ministry of Commerce and other agencies will be established to conduct the reviews, according to the measures published by the State Council on its website.

 Those subject to review will include individual companies or joint ventures holding a  controlling stake, or that obtain decisive voting rights that could affect the operation and structure of restricted businesses. The forms of investment include reinvestment, convertible bonds and outright purchases.

Only those with written commitments that can ease the security concerns of authorities will be allowed to invest in these areas. “Overseas investors” in these cases included those from Hong Kong, Macau and Taiwan, the State Council said as it announced details for foreign investment in planned FTZs in Guangdong, Tianjin  and Fujian. The measures also apply to the existing Shanghai FTZ.