New Security Law Will Discourage Investment in China, Warn Lawyers

China's security law on mergers and acquisitions creates greater uncertainty for foreign investors as the new regulation subjects M&A transactions to an additional layer of review, reports the South China Morning Post.

 

The national security review law covers the defence sector including mainland firms that supply the country's defence industry, as well as non-defence sectors involving companies and technologies that have a bearing on national security. In the non-defence sector, companies and products in agriculture, energy, resources, infrastructure, transport and technologies can come under this law if deemed to affect national security.

 

Under the new law, national security includes not only military defence but also "national economic stability" and "social order".

 

The national security review law was driven by the fact that China led the world in attracting US$100 billion in foreign investment last year, and also the expectation of more acquisitions of Chinese companies by foreign investors, notes a document by WilmerHale, an international law firm.

 

Tracy Wut, a partner at Baker & McKenzie, an international law firm, explains to the Post that the review sets out for the first time the formal process of how foreign companies file an application for a national security review of their acquisition of Chinese companies. "In the past, there was no formal system for foreign companies to file for an application for a national security review." Wut told the Post.

 

 

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