Foreigners who want to acquire Chinese firms will face tougher checks, state media warned yesterday, triggering concern among observers that overseas capital will face harder times in future.
China has written mandatory national security checks on foreign acquisition of domestic firms into a draft law, the first time the mechanism has been included in legislation, the China Daily said.
"Foreign mergers and acquisitions of domestic companies or foreign capital invested in domestic companies in other forms should be examined ... if the cases are related to national security," the draft anti-monopoly law said,the newspaper said.
The draft law was submitted on Sunday to top legislators for a second reading, the paper said.
Analysts said the draft signaled growing difficulties for foreign capital seeking to access the Chinese market as money is no longer the country's primary interest.
"It will be more and more difficult for foreign capital to enter into China," said Andy Xie (
China was keen to attract foreign investment in the past owing to the lack of funding at home, but now the general sentiment has changed as it is trying hard to clear bubbles with excess liquidity rising domestically, he said.
However, multinational companies' interest in taking a stake in Chinese firms is growing as their performance in the country now affects their share prices on the global stock markets, Xie said.
The China Daily report said that foreign mergers and acquisitions accounted for 5 percent of all forms of foreign direct investment annually up to 2003, but increased dramatically to 11 percent in 2004 and nearly 20 percent in 2005.
The startling growth stirred rising concerns from both the government and the public that the Chinese economy ran a risk of falling prey to overseas monopolies if measures were not taken to curb foreign takeovers.
Six government agencies then issued a joint announcement in August last year requiring foreign investors to apply for approval from the commerce ministry when their purchases of domestic firms could affect national economic security.
They must also obtain official approval if their acquisitions are in key sectors or will lead to the transfer of operating rights of famous domestic brands.
Last December the State Council released a list of strategic sectors in which the state will retain control. The list includes military-related manufacturing, power production and grids, petroleum, gas and petrochemicals, telecom manufacturing, coal, civil aviation and shipping.
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