China's new rules for reviewing proposed foreign takeovers of Chinese companies on grounds of national security will not affect the country's long-held policy to encourage foreign investment, the country's top economic planning agency said on Wednesday.
The new rules are also expected to increase the transparency and predictability of China's reviews of foreign investment, according to the National Development and Reform Commission (NDRC).
"China continues to encourage foreign participation in the consolidation and restructuring of domestic companies via equity holdings or acquisitions," the NDRC said in a statement.
It added that the new rules are in line with the World Trade Organization (WTO) and the regulations in countries such as the United States, Germany and Canada.
The State Council, or China's cabinet, said in a statement on Saturday that China will establish a ministerial panel to review foreign firms' attempts to buy, or merge with, domestic companies, laying the ground for the country's first formal process for scrutinizing the national-security questions that arise from international deals.
The committee, lead by the NDRC and the Ministry of Commerce, will review foreign companies' attempts to buy or merge with domestic companies whose business pertains to defense, agriculture, energy, resources, infrastructure, transportation, technology or equipment manufacturing, according to the new rules.
The NDRC clarified on Wednesday that the national security scrutiny will only take place when foreign companies take a majority stake in a domestic merger and acquisitions, meaning that a minority stake purchase will not trigger the review.
It also said the review will be "brief" unless a government department says a deal could put national security at risk.
Zhang Yansheng, director of the Institute for International Economics Research under the NDRC, said the new rules are part of China's progress in establishing a modern economic regulatory system, which is a good thing for both China and the foreign companies.
He said China's main difficulty in enforcing the new rules arises from its scant experience in reviewing foreign acquisitions, adding that the country will not use the panel as a weapon to block normal foreign investments.
In 2009, China vetoed a $2.4 billion bid by Coca-Cola for Chinese firm Huiyuan Juice Group Ltd. A similar rejection also happened in Carlyle's $375 million bid for the construction equipment maker Xuzhou Construction Machinery Group Inc in 2008. But none of the rejections were cited as national security concerns.
China recorded 1,798 mergers and acquisitions in 2010. The transactions had a disclosed value of $82 billion, an increase of 13.8 percent from 2009, according to figures from ChinaVenture Group, a Beijing-based investment consulting firm.
Meanwhile, the number of foreign takeovers grew by 57.9 percent in 2009. Thirty Chinese firms were acquired by overseas buyers in deals with a disclosed value of $2.39 billion, ChinaVenture Group said.