Feb 12 * Foreign M&A deals in China subject
to additional checks
* New rules come into effect in March
* Beijing may block deals that it deems to harm security
(Add details, background)
BEIJING, Feb 12 China will launch a state-level
investment review body to check that merger and acquisition
deals struck by foreign firms in one of the world's
fastest-growing economies do not endanger "national security",
China's State Council, the cabinet, said on Saturday.
The new regulation, which will come into effect in March, is
set to install a new red-tape barrier for doing business in
China, the world's second largest economy where double-digit
growth has attracted more than $105 billion in foreign direct
investment last year.
Foreign investments in military, agriculture, energy and
resources, key infrastructure, transport systems, key technology
sectors and "important equipment manufacturers" may be subject
to reviews, according to a statement published on the central
government Internet portal, www.gov.cn.
The review will be conducted by a "foreign investment
security review board" under the cabinet. Members of the board
will come from the National Development and Reform Commission,
the Ministry of Commerce and other agencies on ad hoc basis.
The new body could enable China to turn the tables on some
countries that have previously blocked its investments on
national security grounds.
China suffered the biggest knock to its deal-making
confidence in 2005, when state-controlled oil firm CNOOC Ltd
withdrew an $18.5 billion bid for U.S. oil firm Unocal
after the Senate moved to block it on national interest grounds.
But Beijing, which introduced an anti-trust law in 2008, has
also blocked deals that do not conform with its national plans
in the past.
China rejected Coca-Cola's $2.4 billion bid for
China's top juice maker Huiyuan , in 2009 and buyout
giant Carlyle's $375 million bid for Xugong, China's biggest
construction equipment maker, in 2008.
The government wants to consolidate many heavy industries
such as steel into the hands of a few big players, and it has
blocked several foreign attempts to buy into its huge steel
sector, by far the world's biggest.
In 2007, it blocked ArcelorMittal from gaining a
majority stake in China Oriental Group and in 2009 it
forced Russia's Evraz Group to abandon an option to
take control of Delong Holdings Ltd , a Chinese
steelmaker listed in Singapore, in a $1.5 billion deal.
China attracted $105.7 billion in foreign direct investments
in 2010, 17.4 percent more than in 2009, but some foreign
businesses have complained that the Chinese government is
becoming more unfriendly towards investors.
According to the new regulation, Chinese government
agencies, trade associations, competitors, suppliers and other
related parties are allowed to apply for the start of a review
of a foreign-related M&A deal.
The process will include two parts as "general review" and
"special review". For those deals failed to pass the "general
review", a "special review" will be started that may last up to
If Beijing finds a deal that could potentially threaten
national security, it can terminate the deal.
"Related departments and units must enhance the sense of
responsibility to guard state and commercial secrets... to
effectively safeguard national security," the cabinet said in
The body could be similar to Australia's Foreign Investment
Review Board (FIRB), which has held sway over dozens of planned
Chinese investments into resources sector in Australia, and
which can block deals it deems not to be in the national
The FIRB advises Australia's treasurer, who has the final
say. In 2009, the state-owned China Non-Ferrous Metal Mining
(Group) Co dropped a $400 million bid for 50.6 percent of Lynas
Corp , owner of the world's richest deposit of rare
earth minerals, saying the conditions set by the FIRB were too
Earlier in the same year, Treasurer Wayne Swan forced
Chinese metals group Minmetals to withdraw a $1.7 billion bid
for OZ Minerals until it revised the deal to exclude a mine
situated in a restricted weapons testing area.
(Reporting by Zhou Xin and Tom Miles, editing by Miral Fahmy)