Foreign acquisitions of Chinese companies will be subject to stringent new checks intended to protect national economic security under a new law passed Thursday.
After 13 years on the drawing board, the Anti-Monopoly Law passed by the Standing Committee of the National People's Congress (NPC), China's top legislature, will come into effect on August 1, 2008.
"As well as anti-monopoly checks stipulated by this law, foreign mergers with, or acquisitions of, domestic companies or foreign capital investing in domestic companies' operations in other forms should go through national security checks according to relevant laws and regulations" it reads.
Foreign companies have begun to acquire major State-owned enterprises or companies with famous brands, raising concerns about economic security.
China already has a basic security check system for foreign mergers and acquisitions.
Foreign investors should apply for approval from the Ministry of Commerce (MOC) if their purchases of domestic companies affect national economic security, take place in key sectors or lead to a transfer of the operating rights of famous domestic brands, according to a regulation issued by the MOC along with five other government organs last year.
In December last year, the State Council, China's cabinet, released a list of strategic sectors in which the State would retain control.
The list included military-related manufacturing, power production and grids, petroleum, gas and petrochemicals, telecom manufacturing, coal, civil aviation and shipping.
The law also bans monopolistic arrangements, such as cartels and other forms of collusion, and provides for the investigation and prosecution of monopolistic practices, while protecting monopolistic arrangements that promote innovation and technological advancement.
It prohibits monopolies from using their dominant status in the market to curb competition, fix prices, enforce package sales, and refuse or enforce trade.
The law states that "an anti-monopoly commission will be set up under the State Council to deal with anti-monopoly issues".
The law also stipulates that "government departments should not take advantage of their power to curb competition", and prohibits governments from appointing producers or suppliers for unit or individual procurement.
Two major foreign chambers, the European Union Chamber of Commerce in China and the American Chamber of Commerce in China yesterday hailed the law as a positive step in the country's evolution as a market-based economy.
"The European Chamber welcomes a more open economy and a level playing field for business in China," Joerg Wuttke, president of the trade body, said.
"Most important, curbing monopolistic behavior should allow Chinese consumers to benefit from greater economic efficiency and stronger protection against the abuse of market dominance."
The chairman of AmCham-China, James Zimmerman, described the law as a "defining moment in the development of China's legal system, which establishes a basic framework to build a fair, uniform and national competition law system that benefits consumers by recognizing and preserving the incentives to compete."
Four other laws or amendments passed by the NPC Standing Committee yesterday are:
the Emergency Response Law;
the amendment to the Law on Animal Epidemic Prevention;
the Employment Promotion Law; and
the amendment to the Urban Real Estate Administration Law.