1. 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.
2. 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”.
3. 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.
4. The NDRC’s broadened authority is derived from China’s new foreign investment law enacted by the National People’s Congress in March, which includes a provision on reciprocity that allows Chinese authorities to treat foreign firms the same way Chinese firms are treated abroad.
5. In a 2015 draft of the foreign investment law, China modelled its national security review requirements and procedures on CFIUS. However, there are now significant differences between Chinese and the US processes.
6. China’s definition of “national security” is broader than the one used by CFIUS. While CFIUS discounts “economic security” in its definition of “national security”, China is clear that “national security” includes economic concerns such as the impact of an investment on domestic capacity, overall economy growth, “basic social order”, and domestic research and development capabilities, according to a report published by US law firm Jones Day.
7. The change in China’s national security review process comes as Chinese investment faces growing scrutiny and hostility in the US and the European Union, adding to trade tensions.
8. For international companies, it will be extremely important that they keep a close watch on regulatory developments in this regard and conduct proper risk analysis before making investment in strategic or sensitive industries.
Source: https://www.scmp.com/economy/global-economy/article/3010002/china-tightens-national-security-review-foreign-investments
