China’s commerce ministry has drafted rules that would require a national security review for “strategic” investments by foreigners in listed companies, echoing moves in other large economies to strengthen controls in sensitive industries.
The proposed amendments to existing rules on foreign investment in listed Chinese companies, published late on Monday afternoon, expand the universe of foreign investments that are covered by China’s existing formal national security review process.
The proposed change follows a string of decisions by the Committee on Foreign Investment in the United States (Cfius) to reject Chinese acquisitions of US companies in recent years.
In other respects, however, the rules lower barriers to foreign investment. The minimum amount of total assets that a foreign investor must own in order to acquire a strategic stake in a listed company would be lowered to $50m from the previous level of $100m.
The rules also cut the lock-up period for listed shares following acquisition by a foreign investor from three years to one. The draft amendment will be open for public comment until August 29.
Over the past year Chinese companies have been singled out by regulators in the US, Germany and, most recently the UK, over investments in strategic sectors such as semiconductors and telecommunications.
While US President Donald Trump recently ruled out a strict new vetting regime for Chinese investments, legislators are tightening the current review process overseen by Cfius.
Beijing, however, is engaged in a delicate balancing act. As Mr Trump threatens additional tariffs against Chinese exports for alleged intellectual property theft, the Chinese government wants to attract more overseas investment.
It is also wants to be seen to be liberalising its investment environment at a time when many US and European critics accuse it of operating one of the world’s most closed economies.
One Chinese asset manager, who asked not to be identified, criticised the reduction in the holding period for foreign investors. “Twelve months is too short for strategic investments,” he said. “This will make it easier for foreign capital to leave.”
The Trump administration has so far penalised Chinese exports worth $34bn annually, with plans to target another $16bn worth of goods by the end of the summer. Mr Trump has additionally threatened to target all Chinese exports to the US, worth more than $500bn annually.
In an unsuccessful effort in April to reduce trade tensions with the US, Chinese regulators announced plans that would lower barriers to foreign investment in the financial and auto sectors.
In comments earlier on Wednesday, Chinese foreign minister Wang Yi said: “China does not want to fight a trade war” and added that its “door to dialogue and negotiations is always open”.
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