China Launching Body To Screen Foreign Investment

BEIJING (AP) - China says it will conduct national-security reviews of foreign attempts to buy local companies in fields including farming and transportation in a move that might fuel complaints it is blocking access to its markets.

China received $105.7 billion in foreign direct investment last year but business groups complain Beijing is trying to nurture Chinese companies by using regulation to hamper foreign rivals in violation of its free-trade pledges.

The government will review proposed acquisitions in fields including energy, farming, transportation, heavy equipment manufacturing and "key technologies," the Cabinet said in a weekend announcement. Reviews will apply to an offer to acquire at least 50 percent of a Chinese company.

The measure appears to go beyond a traditional national security review and involves looking at factors such as the impact on the economy and social stability, according to James Zimmerman, a lawyer in Beijing for the firm Squire Sanders & Dempsey LLP.

"Such a review adds a layer of bureaucratic intermeddling into commercial and economic terms that have no real impact on China's defense policies," Zimmerman said in an e-mail. He said regulators will have "discretion to quash legitimate foreign investment transactions for protectionist reasons."

Beijing has complained that national security objections in the United States and other countries have blocked Chinese acquisitions.

A U.S. panel is reviewing the purchase by a Chinese company, Huawei Technologies Ltd., of American computer firm 3Leaf Systems Inc. U.S. critics say the deal might lead to the transfer of sensitive technology to China.

In 2005, a state-owned Chinese oil company, CNOOC Ltd., dropped an $18.5 billion bid to acquire Los Angeles-based oil and gas producer Unocal Corp. after critics complained the deal might endanger national security.

Beijing welcomes foreign investment but some Chinese officials have said it wants foreigners to set up new companies rather than acquiring existing assets.

The review panel is being created under a Chinese anti-monopoly law enacted in 2008.

Beijing has cited national security or anti-monopoly concerns in blocking major foreign acquisitions in cases that prompted warnings about protectionist sentiment.

A 2005 bid by U.S. private equity firm Carlyle Group to buy a stake in a manufacturer of construction equipment, Xugong Group, triggered a nationalist outcry against the sale of Chinese assets to foreigners. Beijing responded by declaring the field a strategic industry that required national security review and Carlyle later dropped its bid.

In 2009, anti-monopoly regulators rejected Coca-Cola Co.'s $2.5 billion bid to acquire a leading Chinese fruit juice producer, Huiyuan Juice Group Ltd.

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Chinese Cabinet (in Chinese): www.gov.cn