There have been concerns about Chinese government's foreign investment policy ever since the State Council announced the formal establishment of the national security review ("NSR") regime in China.  At a press conference of the Fourth Session of the 11th National People's Congress held on March 7, 2011, China's Minister of Commerce Chen Deming reiterated that China's "opening-up" policy will remain unchanged.  According to Chen, whereas China is in the process of further opening up to the world, introducing the NSR regime ensures that national security concerns will be addressed in a transparent manner and it is in line with international practice. 

The NSR regime is not particular to China.  The United States first instituted the NSR process in the 1980s.  Other jurisdictions, such as Australia, Germany, Canada, also have similar processes (see our article entitled More on China's national security review regime - the American regime vs the Chinese regime).  Through our research, we find that during the past few years, the following contemplated outbound investments by Chinese companies underwent the NSR process:

Year

Transaction

Host Country

National Security Issues Considered

Result

2005

Proposed acquisition of Unocal by China National Offshore Oil Corporation (CNOOC)

US

Potential control of a major energy resource by China

Deal withdrawn by the parties

2007

Proposed acquisition of 3Com Corp by Bain Capital and Huawei Technologies

US

3Com subsidiaries supplies internet security solutions to many US governments

Deal withdrawn by the parties

2009

Proposed acquisition of Firstgold Corp by China Northwest Non-Ferrous International Investment Company

US

Proximity of target property to US military installations

Deal withdrawn by the parties

2009

Proposed acquisition of Western Plains Resources Ltd's (WPG) iron ore project in South Australia by Wuhan Iron and Steel Group

Australia

Proximity of target property to Australian military base

Deal approved after restructuring

2009

Proposed acquisition of OZ Minerals by China Minmetals Corporation

Australia

Proximity of target property to Australian military base

Deal approved after restructuring

2010

Proposed acquisition of 60% equity in Emcore's fiber optic business by Tangshan Caofeidian Investment Corporation

US

Sensitivity of the fiber optic business

Deal withdrawn by the parties

2010

Acquisition of assets and technology of San Francisco-based 3Leaf by Huawei Technologies

US

Likely transfer of advanced computing technology to China

Deal withdrawn by the parties

 

We have two observations to the above list.  First, the above list is by no means exhaustive.  We notice that in the annual reports the Committee on Foreign Investment of the United States ("CFIUS") filed to the US Congress, there are altogether 14 applications filed with CFIUS by Chinese acquirers from 2005 to 2009.  However, since the CFIUS review process is confidential, the reports only provide aggregated data by country and sector.
 
Second, a transaction scrutinized for national security concerns may nevertheless be approved if the structure of the transaction is modified to the extent that such concerns are eliminated.  For example, the proposed acquisition of OZ Minerals by China Minmetals Corporation was eventually approved by the Australian government after the parties submitted a revised proposal, excluding one of OZ Minerals' key mines, which caused the national security concern due to its proximity to Australian military facilities.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.