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China implements new national security rules on foreign investment

·2-min read
BEIJING, Nov. 22, 2020 -- Chinese President Xi Jinping attends Session II of the 15th G20 Leaders' Summit via video link in Beijing, capital of China, Nov. 22, 2020. (Photo by Wang Ye/Xinhua via Getty) (Xinhua/Wang Ye via Getty Images)
Chinese President Xi Jinping has been in an ongoing trade war with US president Donald Trump. Photo: Wang Ye/Xinhua via Getty Images

China unveiled new rules on Saturday, which will see the country review foreign investment on national security grounds.

The reviews system announced by the National Development and Reform Commission (NDRC) covers foreign investments in military industries. They also cover the acquisition of controlling stakes in sectors including energy, natural resources, agriculture, internet technology and financial services.

NDRC said that the potentially broad measures did not amount to protectionism. Publishing the investment rules is “not protectionism or backtracking from opening-up policies,” the NDRC said, asserting that “opening up without protection is not sustainable.”

The commission added that the rules are in line with international practice and would help balance the economic benefits of further opening with the need to ensure national security

“Only by tightening the fence against security risks can China lay the solid foundations for a new round of opening up that is broader, wider and deeper,” it said.

A body dedicated to security reviews, which will be headed by the NDRC and the Ministry of Commerce will be set up to oversee the system.

The rules, which take effect in 30 days, follow a foreign investment law published last year aimed at broadening market access for overseas investors. Foreign companies and trade associations had been awaiting the new rules after last year’s foreign investment law made it clear China would set up a review mechanism for foreign investment.

READ MORE: Trump bans Americans from investing in 'Chinese military-linked' firms

It comes after tension with the US has heightened during president Donald Trump’s final weeks in office.

On Friday, Washington added dozens of Chinese companies to a trade blacklist.

In November, Trump banned US companies from investing in Chinese firms linked to the country’s military on national security grounds. At the time he signed an executive order banning Americans from investing in Chinese firms the administration says are owned by or controlled by China’s military.

The order covers 31 Chinese firms that Washington says "enable the development and modernisation" of China's military and "directly threaten" US security.

From 11 January 2021 US investors will be prohibited from owning or trading any securities of the banned companies. This includes pension funds or owning any shares in blacklisted Chinese companies.

Transactions made in order to divest ownership in the firms will be permitted until 11 November 2021.

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