Proposed rule changes follow increased tensions with US over trade and dealmaking
Foreigners seeking “strategic” stakes in listed Chinese companies could face broader national security reviews under new rules drafted by China’s commerce ministry, a sign Beijing is preparing to hit back at western efforts to curb Chinese acquisitions of sensitive technologies.
The proposed amendments to existing investment rules, published on Monday, expand the universe of foreign investments covered by China’s formal national security review process.
They follow recent efforts by the US, Britain and Germany to strengthen their merger review systems to make it harder for foreign groups to take over domestic companies deemed to have assets critical to national security — moves frequently aimed explicitly at Chinese acquirers.
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Beijing has signalled a willingness to use its merger review process as a tool in its escalating trade war with the US, scuppering a $44bn bid by American chipmaker Qualcomm for a Dutch rival last week.
The new muscle flexing follows a string of decisions by the US agency responsible for national security reviews, the Committee on Foreign Investment in the United States, to reject Chinese acquisitions of US companies.
In other respects, however, Beijing’s draft regulations 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.
“This move is in line with two major trends in China: accelerated financial opening and increased concerns around economic national security,” said Andrew Polk at Trivium, a Beijing consultancy. “The [Communist] party wants to draw clearer lines around what is and is not permitted in terms of foreign investment.”
While US President Donald Trump recently ruled out a strict new vetting regime for Chinese investments, US legislators are tightening the current national security review process.
Mike Pompeo, Mr Trump’s secretary of state, signalled a willingness to challenge China’s growing economic influence in Asia on Monday, announcing a “down payment” of $113m investment in technology, energy and infrastructure in the region.
“[W]e seek partnership, not domination,” said Mr Pompeo, in what appeared to be a veiled reference to China’s $1tn Belt and Road investment scheme in Asia, which has been criticised by some analysts as an attempt to project power over its neighbours.
Beijing 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,” adding that its “door to dialogue and negotiations is always open”.
Date: August 6, 2018
Source: Financial Time