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China introduces national security rules for foreign investment

The Chinese government has introduced guidelines for foreign investment in strategic sectors including defence, requiring proposals to be reviewed on national security grounds. Beijing said the new rules – known as ‘security review measures’ – are in line with international trends.

The measures were approved by the State Council on 19 December and published on the same day by the government’s National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOC).

China has introduced rules to enhance the scrutiny of foreign investment in defence. (Getty Images)

China has introduced rules to enhance the scrutiny of foreign investment in defence. (Getty Images)

They come into effect in January 2021 and are based on China’s new Foreign Investment Law, which was enacted in January 2020 to encourage higher levels of foreign investment in the country.

Under the security review measures, which replace an investment review system that was introduced in 2011, a new dedicated agency will be established by the government that will review and scrutinise inward foreign investments in sectors including defence, energy, internet technologies, and financial services.

In defence, the measures state that there will be no threshold for a review and all investment proposals will be subject to assessment. The joint statement said the measures would apply to “investments in the military industries; sectors that support military industries and national security; and investments in military facilities, military-industrial facilities, and related sectors”.

The new agency – to be headed by the NDRC and MOC – will have the authority to approve or veto proposals that could affect national security, economic stability, social order, or research and development capabilities relating to key technologies. Agency decisions on proposals will be taken between two weeks and two months of proposal submission.

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