China introduces national security review of foreign acquisitions

China introduces national security review of foreign acquisitions, 中国引入国家安全审查制度

On 3 February, the State Council issued a circular establishing a national security review process for certain foreign acquisitions of domestic enterprises. The review procedures took effect on 5 March.

A national security review was provided for in the PRC Anti-monopoly Law, which came into force in 2008. However, no further details were provided. The General Office of the State Council Establishment of a Security Review System for the Merger and Acquisition of Domestic Enterprises by Foreign Investors Notice now establishes a multi-agency panel that will vet proposed foreign investments for national security concerns. According to Mayer Brown JSM, the circular gives the panel “wide discretion to scrutinize and restrict foreign investment in China that is seen to be at odds with the country’s unique socialist market economy and social development goals”.

The panel can be expected to play a similar role to the Committee on Foreign Investment in the United States (CFIUS) and the Foreign Investment Review Board (FIRB) in Australia. Both the CFIUS and FIRB have, in the past, blocked attempted investments by Chinese companies in their respective countries on national security grounds.

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