China To Vet Foreign M&A On Broad National Security Grounds

China plans to vet proposed foreign takeovers of Chinese companies in the interests of national security. The State Council says it is establishing a ministerial level committee under the National Development and Reform Commission and the commerce ministry. It will start work next month and look at proposed foreign acquisitions in areas involving national defense, agriculture, energy, resources, infrastructure, transport, technology and equipment manufacturing. It will assess their impact on economic stability, social order and the country’s technology R&D efforts.

China is not the first country to set up such inter-agency scrutiny, though not many have given theirs such a broad remit. The U.S., for example, has its Committee on Foreign Investment in the United States (CFIUS). Its mandate is narrowly national security, though some conservatives want it broadened and the committee strengthened in response to China’s growing foreign direct investment.

China attracted $106 billion in foreign direct investment in 2010, up 17% on the previous (global financial crisis wracked) year. Foreign companies have not previously faced formal review of their proposed direct investments in China on national security grounds, although informal barriers have long existed and Beijing has always held an ultimate veto. In 2008 China introduced an anti-monopoly law (and promised the national security review mechanism that has now been announced). Coca-Cola’s $2.4 billion bid to take over Huiyuan Juice in 2009 was one that got stymied on competition grounds. Before that ArcelorMittal and Russia’s Evraz Group were rebuffed in attempts to buy into the steel industry.