China will conduct security inspections of foreign investment that potentially affects national security in the country's four free trade zones (FTZs), the State Council said Monday, signaling China's efforts to further open up to foreign investment while preserving national security.
The inspections will be applied to foreign investment in the arms industry or near key or sensitive military facilities in the FTZs, the State Council said in a statement released Monday.
Foreign investors in the FTZs will also be inspected if they invest in key agricultural, energy, infrastructure, transportation, cultural, telecom and equipment manufacturing enterprises that involve national security, only if foreigners have a controlling stake in these enterprises, the statement said.
The inspections will touch on the foreign investments' effect on China's defense, economic stability, social order, cultural security, Internet security and key technology research and development, according to the statement.
"National security inspections have already been implemented in the Shanghai FTZ, but the measure's announcement makes the process more transparent to foreign investors and reflects China's efforts to advance the rule of law," Chen Bo, a professor at Shanghai University of Finance and Economics, told the Global Times Monday.
The country's first FTZ was launched in Shanghai in September 2013. The other three newly approved FTZs in Fujian and Guangdong provinces and Tianjin are scheduled to be officially launched on Tuesday.
"As China adopts a negative list approach to foreign investment in the FTZs, it is necessary to maintain the country's national security by rolling out the measure," Bai Ming, a research fellow at the Chinese Academy of International Trade and Economic Cooperation, told the Global Times Monday.
"Other countries such as the US also conduct similar security inspections on foreign investment that concerns national security, so the newly released measure is consistent with international practices," Bai said.
The negative list means foreign companies can invest without any restrictions in any sector not on the list. It was piloted in the Shanghai FTZ in 2013.
The State Council on Monday released an updated negative list that will be applied to foreign investment in the four FTZs.
"The new list includes 122 items, down from 139 that have been adopted in the Shanghai FTZ," Wang Shouwen, assistant minister of commerce, said at a press conference in Beijing on Monday.
It is the second time the negative list has been shortened. In June 2014, the negative list in the Shanghai FTZ was reduced to 139 from 190 items when it was first introduced in 2013.
"The Shanghai FTZ has so far attracted more than 3,000 foreign enterprises, and about 90 percent of them did not go through administrative approvals thanks to the negative list approach, Wang said.
The shortened negative list signals China's greater opening-up and transparency to foreign investment, he added.
The four FTZs' roles were also announced on Monday. The Guangdong FTZ hopes to promote deeper economic integration with neighboring Hong Kong. The Tianjin FTZ will work towards the integration of the Beijing-Tianjin-Hebei region. The Fujian FTZ will serve cross-Straits economic cooperation with Taiwan, and the Shanghai FTZ's primary role is to promote trade and investment as well as the yuan's full convertibility.
