New investment law on cards

Foreign investors will have to gain security clearance from the government for investments that are considered harmful to national security, according to a draft law made public on Monday, which among other things seeks to provide easier access to the Chinese market.

The draft foreign investment law, which was released by the Ministry of Commerce, stipulates that the State Council will set up a joint ministerial mechanism to carry out security reviews on foreign investment. Experts said the procedure is similar to the review system in foreign countries.

According to the draft law, foreign investors can apply for the review proactively if they feel that their investment threatens China's national security.

In addition, related government agencies, industry associations, enterprises in the same industry or in the production chain can also make suggestions to the central government to conduct such evaluations on foreign investors, and the joint ministerial mechanism will make the decision on whether a review is necessary or not.

The draft law lists involvement in defense, energy, grain, information technology and some others as potential sectors for such reviews.

The full text of the draft law is available on the ministry's website, and the public can submit feedback before Feb 17 by visiting the website www.mofcom.gov.cn, or by sending an e-mail to investmentlaw@mofcom.gov.cn or sending fax to 010-65198905 or letters to the ministry.

According to China's legislative procedures, the draft law will need to be submitted to the top legislature, the National People's Congress, for final review.

Commerce Ministry spokesman Sun Jiwen said the draft law also eases restrictions on foreign investors and grants them easier access to the Chinese market.

Foreign companies will receive pre-established national treatment under the new regulations and the current troublesome case-by-case approval system would be replaced by a "negative list" management.

Sun said these moves will help unify domestic laws on foreign investment and focus on creating a level playing field for foreign and domestic investors, as well as enhancing security reviews.

The "negative list" for foreign investment was introduced in the China (Shanghai) Pilot Free Trade Zone in September 2013. Since then, authorities elsewhere have been eager to replicate the system.

According to the new law, enterprises will not be regulated based on their ownership but on "who is in control". Foreign enterprises on the Chinese mainland that are controlled by overseas investors will be considered foreign while those controlled by Chinese investors will be regarded as such.

"Under the new rule, multinationals will be keen to strengthen cooperation with their Chinese partners in promoting regional development, technological innovation, outsourcing services and product safety," said Wang Zhile, a senior researcher on foreign investment at the Chinese Academy of International Trade and Economic Cooperation, a think tank under the Ministry of Commerce.