China outlines system to subject foreign investors to national security review
- Rules cover everything from defence and technology to infrastructure, transport and financial services but officials insist they are not protectionist
- Foreign companies, joint ventures, takeovers and minority stakeholders could all be subject to review under the plans
China published details of a system to review foreign investments for national security risks on Saturday, covering everything from defence to agriculture.
The 23 articles published by the National Development and Reform Commission, the country’s economic planning agency, also cover investments near military facilities and foreign attempts to take over Chinese firms in key sectors.
The wide-ranging regulations include energy, equipment manufacturing, infrastructure, transport, information technology, internet products, financial services and technology.
“The rules on foreign investments are not protectionism, nor are they a regression in opening up,” the commission said in an explainer published on its website.
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“Opening to the outside world without security guarantees is unsustainable. Only by tightening the fence to prevent and control security risks can we lay a solid foundation for a new round of opening up and better implement wider, broader, and deeper opening up.”
China is keen to attract more foreign investment, which has played a key role in the country’s economic boom. But it has also tried to tighten its regulations as Chinese investments came under greater scrutiny abroad.
Saturday’s guidelines follow the passing of a foreign investment law last year that gave the government power to review any investment that could affect national security.
The new rules say that not only could firms or projects set up by foreign companies and joint ventures face a security review, but also any foreign takeovers of Chinese firms or minority stakeholders that have sufficient voting rights to affect investors.
Investors covered by the rules – including those from Hong Kong, Macau, and Taiwan – will need to report their investment in advance to a committee run by the commission and commerce ministry, similar to the Committee on Foreign Investment in the United States.
Once a review request is submitted, it should generally take 15 days for the committee to decide whether to undertake the review and another month to complete it, according to the rules. In special cases, it will take another two or more months to complete the process.
Donald Trump has given the foreign investment committee more powers and resources to review Chinese investments in the US, particularly those involving technology.
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Huo Jianguo, vice-chairman of China Society for World Trade Organization Studies, said he did not think the process would deter foreign investors.
“It’s in line with international practice. Many nations have review mechanisms in place for foreign investment, including the United States and European countries. China took reference from the common practice,” he said.
“From the viewpoint of national security, it is necessary and normal to review areas that are deemed sensitive,” Huo said, referring to defence, oil, mineral resources and internet industries, which involve advanced technology or security.
