A comparative study of national security review in China and US foreign investment laws and practices

Abstract

National Security is an essential concern in foreign investment laws and practices. China had been quite conservative regarding foreign investment and always kept a close eye on economic activities that might have national security implications. Since foreign investment in China became a main engine propelling China’s economic miracle after reform and opening up, China has been engaged in the process of formulating and implementing a more comprehensive and structured set of rules governing foreign investment on national security grounds. In March 2019, a unified Foreign Investment Law (FIL) with more liberalized rules was promulgated, and the Measures on Security Review for Foreign Investment (Measures) came into force in January 2021, basically forming the regulatory mechanism of national security review under the legal regime of FIL. Even though US has always advocated to liberalize foreign investment, it was the first country that integrated national security concerns into foreign investment legislation. The Committee on Foreign Investment in the United States (CFIUS), as an inter-agency committee, has gained prominence on performing national security review over foreign investment in the past decades. Recently, it has drawn significant attention to Chinese investment flowing in US. Presidential orders made on blocking Chinese investment in US indicate a marked change in the traditional open-investment stance, which attempt to use the CFIUS as a vehicle to halt unsatisfied foreign investment. The Foreign Investment Risk Review Modernization Act (FIRRMA) signed in August 2018 is designed to modernize national security review and impose special restrictions on foreign investment, especially on Chinese investment.

The economic interactions of China and US, respectively as the most influential developing and developed countries in the world, are vital to global economy, even international politics. Foreign investment, as one of the most important fields in their economic relations, plays an essential role. From a constructivist perspective, this thesis argues that the internal idea on national security and foreign investment, or the internal idea on national security review plays a dominant role in affecting the formulation of its legal performance in foreign investment law, and the interaction of investment practices with national security review between China and US help to orient their evolutionary processes with great similarities. Based on this theoretical framework of idea dominance and process orientation, this thesis points out that even though national security review in China and US foreign investment laws are oriented with each other with great commonalities in legal rules through the oriented process of bilateral investment practices, it is hard or even impossible for them to reach a compromise or reach a same destination on national security review due to their different internal ideas on national security review which play a dominant role. However, the process with oriented role is where efforts could be made to ease their investment conflicts on national security review. Therefore, recommendations in a constructivist approach based on idea dominance and process orientation for facilitating China and US investment activities in relation with national security review were proposed.