Foreign investment security review rules to align with intl practice

China unveiled new rules for reviewing foreign investment on security grounds over the weekend in a major move to align with global practice in regulating foreign investment in the military, key energy and information technology sectors, and financial services.

Arguing against misleading claims that distort the nation’s efforts to fill the regulatory gap as a tit- for- tat response to US sanctions, experts noted that the new rules are intended to strengthen China’s legal framework for greater opening- up and they would augur well for legitimate foreign businesses looking to the Chinese market while serving as a sharp weapon to battle offenders.

The National Development and Reform Commission ( NDRC) and the Ministry of Commerce ( MOFCOM) on Saturday jointly released the new rules, scheduled to come into force in 30 days. The 23- clause new rules rest upon the Foreign Investment Law and the National Security Law as a legal basis.

Foreign investment in the military sector, among other national defense and security related areas, and investments involving foreign persons near military facilities would be subject to the new rules.

The significance of the security review on foreign investments in China’s arms sector and national defense is self- evident amid the country’s continued and expanding reform and openingup, Song Zhongping, a Chinese military expert and TV commentator, told the Global Times on Sunday.

If foreign investments manage to tap into China’s arms industry and military development without proper supervision, the risk is high that foreign capital gets some say in China’s national defense development that would harm China’s national security, a Chinese expert on intelligence security told the Global Times on Sunday on the condition of anonymity.

Another possibility is that improper investment in Chinese arms companies or military units would have to report work progress to foreign investors, during which confidential intelligence could leak, the expert said.

“This new rule is by no means a unique practice by China in reaction to changing global situations, but a catch- up the nation needs to align itself with similar legislation in major global economies,” said Gao Lingyun, an expert at the Chinese Academy of Social Sciences in Beijing on Sunday.

Similar practices having been signed into law or being mulled in the US, EU, Australia, Germany, Japan and the UK.