China introduces security review rules for foreign investors

Beijing: Foreign investors in Chinese industries from defence to tech will from next year face an extra layer of scrutiny to ensure their activities do not undermine national security, the country´s top economic planner said on Saturday.

Under the new rules, overseas investment in Chinese industries related to the military will automatically be reviewed.

But forays into agriculture, energy, transport, internet and financial services will only face a review if they involve the acquisition of 50 percent of a Chinese company, or will significantly affect the business. Investors in those cases must submit to a government review determining whether their moves "affect national security", according to the National Development and Reform Commission (NDRC), which did not specify what activities would be seen as having such an effect. “Only by tightening the fence against security risks can China lay the solid foundations for a new round of opening up that is broader, wider and deeper,” the commission said. This was in line with international practice and would help balance the economic benefits of further opening with the need to ensure national security, the NDRC said. The announcement comes as U.S. President Donald Trump ratchets up tensions with China in his final weeks in office. Washington added dozens of Chinese companies to a trade blacklist on Friday.

Publishing the investment rules is “not protectionism or backtracking from opening-up policies,” the NDRC said, asserting that “opening up without protection is not sustainable.” Major economies like the United States, the European Union, Australia, Germany and Japan have established or improved their review mechanisms on foreign investment in recent years, it said.

The new system will establish a body dedicated to security reviews, headed by the NDRC and the Ministry of Commerce. The rules, which take effect in 30 days, follow a foreign investment law published last year aimed at broadening market access for overseas investors. Last year’s foreign investment law made it clear China would set up a review mechanism for foreign investment, and foreign companies and trade associations have been awaiting the new rules so that they can make investment decisions, the NDRC said. The announcement comes nearly a year after China´s new foreign investment law came into force, promising to give local and foreign companies equal treatment in the Chinese market. The NDRC said the rules, which will take effect on January 18, were intended to "effectively prevent and dissolve national security risks while actively promoting foreign investment".