China issues new rules to regulate FDI on national security grounds

New rules for the review of foreign investment on national security grounds have been published by China.

The regulations could potentially include broad measures that China insisted did not amount to protectionism. Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.

The review system announced by the National Development and Reform Commission (NDRC) covers foreign investments in military sectors and the acquisition of controlling stakes in such sectors as energy, natural resources, agriculture, internet technology and financial services.

“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.

NDRC said that this was consistent with international practice and would help balance the economic benefits of opening up further with the need to ensure national security.

The announcement comes as US President Donald Trump, in his final weeks in office, is raising tensions with China. Recently, America added dozens of Chinese companies to a trade blacklist.

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.