Balancing Security and Growth: Defining National Security Review of Foreign Investment in China

One of the most recent steps in China’s slow march towards liberalization of foreign investment is the introduction of the 2006 Provisions on Acquisition of Domestic Enterprises by Foreign Investors (“2006 M&A Provisions”). Article 12 of this law provides new procedures for review and approval of foreign investment in China. China’s national security review of foreign direct investment has the same motivations as the United States’ Committee on Foreign Investment in the United States (CFIUS) review, but it is much murkier and less efficient. CFIUS is governed by numerous statutory and regulatory guidelines.

China should integrate some of the CFIUS statutes and regulations, which allow the United States to address new threats to national security without unreasonably burdening foreign investment, into its national security review process. China should also draw on standards contained in other parts of the 2006 M&A Provisions to improve the workability of national security review under Article 12. These changes would help ensure that foreign investors will be willing to continue providing the capital that has helped drive China’s economic transformation, while safeguarding China’s essential national security interests.