China tightens ‘national security’ review for foreign investments, sparking fears of trade war retaliation

NDRC quietly takes over sole responsibility of national security reviews of foreign investments, as part of new foreign investment law

China’s state planner has broader remit than US counterparts with little transparency, leading to concerns over trade war retribution

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China’s President Xi Jinping (C, front), Li Keqiang (3rd R, front), Wang Yang (3rd L, front), Wang Huning (2nd R, front), Zhao Leji (2nd L, front), Han Zheng (1st R, front) and Wang Qishan (1st L, front) attend the opening meeting of the second session of the 13th National People's Congress at the Great Hall of the People in Beijing, capital of China, March 5, 2019. Photo: Xinhua

Published: 6:30pm, 13 May 2019Updated: 8:37am, 14 May 2019

There was little fanfare last month when China’s central planning agency quietly had its remit expanded to govern whether inward investments threaten national security.

However, experts are suggesting that the new powers, together with a new article in its foreign investment law, gives China a legitimate platform to make a strong legal case against US firms investing in the country, as the trade war escalates.

The National Development and Reform Commission (NDRC) is now charged with reviewing foreign investments to ensure they are in line with “economic security”, which has been made a top governmental priority. The state planner has had its authority beefed up in the process.

The new security review procedure was introduced through a brief notice published online in April by the NDRC. The note stated that its public service department would start accepting applications for national security reviews of foreign investment deals because of an “adjustment of departmental responsibility”.

What appears to be a simple logistical adjustment for applicants, however, could signal a bigger change in the national security review process for foreign investors, especially in sectors that the Chinese government deems sensitive, according to analysts and lawyers.

China's President Xi Jinping (L) and US President Donald Trump attend a welcome ceremony at the Great Hall of the People in Beijing. Despite Trump touting his personal rapport with his Chinese counterpart, progress towards a trade deal has stalled. Photo: Agence France-Presse

It has drawn comparisons with the Committee for Foreign Investment in the United States (CFIUS), the inter-agency group that vets foreign investment in the US. However, analysts are saying the Chinese version has an even broader remit.