China's top legislature on Sunday read for the second time the draft anti-monopoly law which requires foreign purchases of Chinese companies to go through checks to ensure there is no negative effect on China's national security.
The draft of China's first anti-monopoly law was submitted Sunday to the 28th session of the Standing Committee of the National People's Congress (NPC), or China's top legislature, for a second reading.
The draft said, "foreign mergers and acquisitions of domestic companies or foreign capital investing in domestic companies' operation in other forms should be examined according to relevant laws and regulations if the cases are related to national security."
According to official statistics, the number of foreign merger and acquisition cases only accounted for 5 percent of all forms of foreign direct investment in China annually before 2004. However, the proportion rapidly increased to 11 percent in 2004 and nearly 20 percent in 2005.
What's more, foreign companies have begun to acquire major state-owned enterprises or companies with famous brands in recent years, arousing concerns about China's economic security.
China has already established a basic national security check system for foreign mergers and acquisitions.
Foreign investors should apply for approvals from the Ministry of Commerce (MOC) if their purchases of domestic companies affect national economic security, take place in key sectors or cause a transfer of the operating rights of famous domestic brands, according to a regulation issued by the MOC along with five other government organs last year.
Before that, only mergers and acquisitions worth more than 100 million U.S. dollars needed MOC checks and approvals.
China will strengthen examination and supervision of foreign merger operations affecting major enterprises in sensitive sectors and issue policies to improve the system for admitting foreign invested industries by the end of 2010, according to the National Development and Reform Commission (NDRC).
Zhang Yansheng, director of the International Economic Research Institute under the NDRC, said it is crucial to require foreign purchases of domestic firms to go through state security checks as well as anti-monopoly checks.
But "the situation needs to be spelt out in more detail. For example, what kind of mergers are related to national security?" he said.
The draft anti-monopoly law, aiming to protect fair competition, prevent and check monopolistic behavior and maintain a regulated market place, was submitted for first review in June 2006.
The anti-monopoly law is a basic law for market economy. To date, there have been more than 80 countries adopting anti-monopoly law.
China planned to stipulate anti-monopoly law as early as in 1994. Experts said China's socialist market economy has turned mature over more than one decade, and in current market circumstances, the introduction of an anti-monopoly law is imperative.