China issues national security rules on foreign investment

© Reuters/CARLOS GARCIA RAWLINS Event marking the 70th anniversary of the Chinese People's Volunteer Army's participation in the Korean War in Beijing

SHANGHAI (Reuters) – China published rules on Saturday for reviewing foreign investment on national security grounds, potentially broad measures that it insisted did not amount to protectionism.

The review system announced by the National Development and Reform Commission (NDRC) covers foreign investments in military sectors and the acquisition of controlling stakes in such sectors as energy, natural resources, agriculture, internet technology and financial services.

“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,” the commission said.

This was in line with international practice and would help balance the economic benefits of further opening with the need to ensure national security, the NDRC said.

The announcement comes as U.S. President Donald Trump ratchets up tensions with China in his final weeks in office. Washington added dozens of Chinese companies to a trade blacklist on Friday.

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.”

Major economies like the United States, the European Union, Australia, Germany and Japan have established or improved their review mechanisms on foreign investment in recent years, it said.

The new system will establish a body dedicated to security reviews, headed by the NDRC and the Ministry of Commerce. The rules, which take effect in 30 days, follow a foreign investment law published last year aimed at broadening market access for overseas investors.

Last year’s foreign investment law made it clear China would set up a review mechanism for foreign investment, and foreign companies and trade associations have been awaiting the new rules so that they can make investment decisions, the NDRC said.

(Reporting by Samuel Shen and David Stanway; Editing by Michael Perry and William Mallard)