- The Washington Times - Friday, August 31, 2007

BEIJING (AP) — National security checks that have held up U.S. and other foreign purchases of Chinese businesses became law yesterday.

The anti-monopoly law marks the first time demands for such reviews have been enshrined in China‘s legal system, bringing together various rules and guidelines enacted as early as 2002. It takes effect next August.

“In addition to an anti-monopoly review, foreign investments that could affect national security must undergo a state security review,” Huang Jianchu, head of the national legislature’s economic law section, told reporters.

“I believe this is in keeping with the practices of other countries,” he added.

Foreign governments have scrutinized attempted Chinese purchases of U.S. and other foreign assets for national security reasons.

Criticism from Congress in 2005 forced China’s state-controlled CNOOC Ltd. to give up an $18.5 billion takeover bid for the U.S. oil company Unocal Corp. Lawmakers said the deal could jeopardize U.S. security.

In addition, after a controversial and ultimately unsuccessful attempt by a Dubai state-owned company in early 2006 to purchase operations at six U.S. ports, Congress took up legislation to strengthen U.S. reviews of foreign investment.

The bill was enacted by President Bush in late July, and provides for greater congressional oversight of the government body that reviews foreign investment for security implications. It also heightens scrutiny of investment by foreign state-owned companies.

U.S. business groups, while wary of deterring investment from overseas, generally welcomed the law in hopes that it will provide greater predictability to the process after the CNOOC and Dubai controversies.

Despite the national security provisions, the new Chinese law was welcomed by the American Chamber of Commerce in Beijing, which had been consulted in drafting it.

The law is a “defining moment in the development of China’s legal system, which establishes a basic framework to build a fair, uniform and national competition law system that benefits consumers by recognizing and preserving the incentives to compete,” chamber Chairman James Zimmerman said.

Specific industries subject to security reviews weren’t named and many sectors remain off-limits altogether to foreign buyers.

The government last year also released a list of strategic sectors in which state monopolies would continue to be permitted. They include military-related manufacturing, power production and grids, petroleum, gas and petrochemicals, telecom manufacturing, coal and civil aviation.

Beijing stepped up scrutiny of foreign takeovers after an uproar in 2005 over U.S. investment fund Carlyle Group’s offer to buy a Chinese maker of construction equipment. Critics complained that such deals might threaten China’s economic security, prompting the government to require makers of construction equipment to consult Beijing before selling large stakes to foreigners.

China received more than $60 billion in foreign investment last year, but foreign takeovers of Chinese companies are still unusual.

Chinese regulators also have held up a bid by European steel maker ArcelorMittal to buy a midsize Chinese competitor, Laiwu Steel. A Laiwu spokesman said in March that Chinese officials wanted more money and unspecified conditions to protect China’s domestic steel industry.

Thirteen years in the making, China’s anti-monopoly law seeks to promote fair competition and further open up the economy. It will take effect on Aug. 1, 2008.

The law bans monopolistic agreements and practices such as cartels and price-fixing but allows for monopolies that promote innovation and technological advance. Details were hazy and the full text of the law has not yet been released.

Analysts have said the law could help China protect its fledgling domestic industries from multinational competition, while others said it would curtail the power of state-owned enterprises.

Beijing officials have said the legislation would not discriminate between domestic and foreign companies. Mr. Huang said a committee under the State Council, China’s Cabinet, would carry out anti-monopoly reviews, but didn’t say who would be responsible for national security checks.

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