Preparing the Toolkit in Case of Need: Foreign Investment Security Review Mechanism in China

Abstract：In 2019, against the backdrop of strategic competition between China and the United States (US), the Sino-US trade war escalated further, while the number of cases in which the US imposed strict national security reviews on Chinese companies operating in the US increased significantly. Meanwhile, China promulgated the Foreign Investment Law (FIL) of the People’s Republic of China and surpassed the US to become the world’s largest recipient of foreign direct investment (FDI). In response to the furtherance of investment liberalization characterized by the modality of pre-establishment national treatment plus negative list, and the US’ strengthened national security review of Chinese investment, the FIL and the Measures for the Security Review of Foreign Investment mandate the establishment of a formal national security review system for foreign investment. Modeling the US counterpart, the SRM leaves a few terms ambiguously defined or subject to the discretion of the authorities. Like the current toolkit, the national security review system can be activated when necessary to control unwanted foreign investment in the context of Sino-US strategic competition.

Keywords：Foreign Direct Investment (FDI), National Security Review, Foreign Investment Law (FIL), Security Review Measures, Toolkit