context: Balance between 'openness' and security will mark the next wave of open-door policies. Upping foreign investment scrutiny, alongside export controls, and setting up an early warning system for damage to domestic industries are key tasks. Signs of foreign investment scrutiny reform emerged in 2019 alongside the Foreign Investment Law, with the acquisition of Zhongbai Holding by Yonghui Superstore as a test case. This latest announcement arrives at a delicate time, with the rumoured closing of a China–EU investment deal just ahead of the Biden inauguration.
New measures for foreign investment security review will come into effect on 18 Jan 2021, specifying
- a foreign investment security review working mechanism to be led by NDRC (National Development Reform Commission) and MofCOM (Ministry of Commerce), its offices to be located in NDRC
- foreign investment related to the following should voluntarily report to the office of the working mechanism
- arms and items ancillary to arms, national defence, locations near military facilities
- important agricultural products, important energy and resources, critical equipment manufacturing, important infrastructure, important transportation services, important cultural products and services, important information technology and Internet products and services, important financial services, key technology, or any other important field related to national security, resulting in the foreign investor's acquisition of actual control of the enterprise
- general review period: 30 days
- special review if deemed potentially affecting national security: 60 days
- government agencies, firms, social organisations and the public may make suggestions to the working mechanisms on whom to review
- applies to Hong Kong, Macao and Taiwan investors
According to Zhonglun Law Firm, highlights of the new rules are,
- expanding the scope of application to
- greenfield, securities and other forms of investment
- important internet products and services, financial services
- investment may be approved with conditional clauses specified by the working mechanism
The review will be as simple as possible to avoid excessive burden on enterprises, according to the NDRC's explanation of the rules. Set out in three stages based on risk levels, fewer, and even fewer, investments will be required into the second and third stages, respectively.