Deeper Opening up on Security Review of Foreign Investment

China’s National Development and Reform Commission and Ministry of Commerce have jointly issued new measures for security review of foreign investment. Issued on December 19 under the approval of the State Council, the new measures are set to take effect on January 19, 2021.

According to the new measures, foreign investments that will be subject to security review include those relating to military industries, other national defense and security fields, locations close to military facilities or military industrial facilities, as well as major agricultural products, energy, and certain fields that have importance to national security.

Foreign investors or the relevant Chinese parties will be required to proactively report any foreign investment within the abovementioned scope to the office in charge before making the investment. Any illegal practices such as failure to report or false reporting will incur appropriate punishments.

The newly-released measures have rattled the nerves of some foreign investors and Western media outlets, with some raising concerns that whether the Chinese Government is trying to curb foreign investment and partially reducing China’s opening up by practicing trade protectionism.

These are baseless worries, because a careful analysis of these new measures will reveal the Chinese leadership’s determination to open the country’s economy wider to the outside world.

Foreign investment has become an increasingly important part of the Chinese economy since the late 1970s. Manufacturing, energy resources, infrastructure, agriculture and finance are the areas open widest to foreign investment, and the areas that have drawn the main focus of foreign investment. An improving and mutually beneficial business environment has made China one of the most popular investment destinations in the world. Despite a heavy blow dealt to transnational investment by the novel coronavirus pandemic in 2020, China’s use of foreign investments have risen steadily, making China one of the few major economies to witness an increase in foreign absorption.

Opening up to the outside world is one of China’s basic national policies. One can expect China to further expand the list of its industrial sectors open to foreign investments step by step.

Military industry, as well as other national defense and security-related fields, are significant to a country’s sovereignty. China has never before given the green light to investments in these fields, or in locations surrounding military installations or arms industry facilities. Upcoming years will see these fields open up to and receive foreign investments. If China was not opening these areas to foreign investment, there would be no need for the new review measures issued this month.

An increased degree of openness requires more stringent security measures. This is also the case in Western countries, which have laws such as the Foreign Investment Risk Review Modernization Act in the U.S. and the EU’s Foreign Direct Investment Screening Framework.

The newly-released rules have been put in place to strengthen China’s security network during the process of opening up, as well as to prevent and remove national security risks while promoting and better protecting foreign investments.

China’s opening up will be unsustainable without a strong security network. A stronger fence against various security risks is expected to ensure more extensive and deeper opening up to the rest of the world.

Of course, on the precondition that security of foreign investments is ensured, the Chinese Government will provide timely responses to foreign investors’ misgivings so as to ensure the review process will not be too lengthy once the new measures are put into practice.

The author is a commentator with Beijing Review magazine.