China's Anti-Monopoly Merger Control and National Security: Interactions with Foreign Investment Law and Beyond

• Author: Meirong Jin/Qian Li
• Position: Associate Professor, School of Law, Renmin University of China, China/Ph.D. Candidate, School of Law, University of Wu¨rzburg, Germany
• Pages: 471-507

China’s Anti-Monopoly Merger Control and

National Security: Interactions with Foreign

Investment Law and Beyond

Meirong Jin* & Qian Li**

ABSTRACT

China has adopted a unique approach that combines foreign investment law

and anti-monopoly law to protect national security in merger transactions. As a

legal tool at China’s disposal, anti-monopoly merger control has actively contrib-

uted in its first decade of enforcement to addressing national security concerns

arising from overseas mergers, including pseudo-overseas and actual overseas

mergers. In pseudo-overseas mergers, such as in the well-known Coca Cola’s pro-

hibited acquisition of the Chinese juice maker Huiyuan and the conditionally

approved acquisition of the Chinese online supermarket Yihaodian by Wal-Mart,

anti-monopoly merger control has interacted with China’s foreign investment law

and served as its supplementary tool in the task of protecting national security.

Beyond this interaction with foreign investment law, anti-monopoly merger control

has served as the sole line of defence for national security (particularly the import

security of supplies) in actual overseas mergers, such as in the resource merger

between two Swiss-based enterprises; Glencore and Xstrata. Such connection

between national security and anti-monopoly merger control has been less dis-

cussed so far but gains increasing importance in today’s international economic

climate. It is argued that anti-monopoly merger control has been an indispensable

part of China’s national security protection framework, with four characteristics

that make it a suitable tool for national security purposes, including its extraterri-

torial reach, flexible substantive competition assessments, tailored merger remedies

and the institutional link upon the dual responsibilities of China’s Ministry of

Commerce. China’s combined approach ensures national security protection, but

the anti-monopoly law’s intended values in protecting competition and promoting

economic efficiency are thereunder distracted and undermined. Although this com-

bined approach is likely to continue to be used in the near future, a possible alter-

native - namely, to restructure China’s national security review regime to apply in

a nationality-neutral manner - could be a long-term fundamental solution.

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 472

* Associate Professor, School of Law, Renmin University of China, China, E-mail: jmeirong@sina.

com. © 2023, Meirong Jin.

** Ph.D. Candidate, School of Law, University of Wu¨rzburg, Germany, E-mail: qian_li2015@163.

com. © 2023, Qian Li.

471

I. CHINA’S FOREIGN INVESTMENT LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 480

A. Market Access Control Regime . . . . . . . . . . . . . . . . . . . . . . . 480

B. National Security Review Regime . . . . . . . . . . . . . . . . . . . . . 482

II. CHINA’S ANTI-MONOPOLY LAW: MERGER CONTROL REGIME . . . . . . . . . 484

III. NATIONAL SECURITY CONCERNS IN ANTI-MONOPOLY MERGER CONTROL:

LEGISLATION AND ENFORCEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486

A. National Security Concerns in Anti-Monopoly Merger

Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 486

B. National Security Concerns in Anti-Monopoly Merger

Enforcement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 488

1. Interactions between Anti-Monopoly Merger Control and

Market Access Control . . . . . . . . . . . . . . . . . . . . . . . . . . 488

2. Interactions between Anti-Monopoly Merger Control and

National Security Review . . . . . . . . . . . . . . . . . . . . . . . . 491

3. Anti-Monopoly Merger Control and National Security

Concerns beyond Foreign Investment Law . . . . . . . . . . . 494

IV. ANTI-MONOPOLY MERGER CONTROL: A TOOL FOR NATIONAL SECURITY

PROTECTION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 496

A. Three-layer Framework for National Security Protection . . . 496

B. Anti-Monopoly Merger Control: National Security-Friendly

Features . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 498

1. Extraterritorial Reach . . . . . . . . . . . . . . . . . . . . . . . . . . . 498

2. Flexible Substantive Assessments . . . . . . . . . . . . . . . . . 499

3. Tailored Merger Remedies . . . . . . . . . . . . . . . . . . . . . . . 500

4. Dual Responsibilities of the MOFCOM . . . . . . . . . . . . . 501

C. China’s Combined Approach: Consequences and Future . . . 503

D. An Alternative to China’s Combined Approach: A Nationality-

Neutral National Security Review Proposal . . . . . . . . . . . . . 503

CONCLUSION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 506

INTRODUCTION

As a basic form of foreign direct investment (FDI), cross-border mergers and

acquisitions (M&As) have shown a robust upward trend around the globe over

the past few years.

1

Compared with other forms of foreign investment, cross-

border M&As are likely to raise greater national security concerns in host countries;

2

that is, the country into which a FDI flows. This is because foreign investors can ac-

quire control over domestic facilities that are sensitive for national security, busi-

nesses of strategic importance, critical infrastructures, advanced

1. The value of net cross-border M&As has shown an overall rising tendency since 2013. It dropped

once in 2017 but almost recovered in 2018. See United Nations Conference on Trade and Development

(UNCTAD), World Investment Report 2019 - Special Economic Zones, 7–8, UNCTAD/WIR/2019

(2019).

2. See CARLOS ESPLUGUES, FOREIGN INVESTMENT, STRATEGIC ASSETS AND NATIONAL SECURITY 161

(2018).

472 JOURNAL OF NATIONAL SECURITY LAW & POLICY [Vol. 13:471

technologies and know-how, or leading research and development (R&D)

capabilities.

3

The concerns may become even more serious when foreign

investors have substantial links with their own governments, as is the case

for state-owned enterprises (SOEs), raising questions about hidden political

motives.

4

Although in principle an open attitude towards foreign invest -

ments prevails worldwide, the rising desire of a growing number of host

states to protect their national security, particularly by assessing acquisitions

by foreign investors, is obvious.

5

In response to an increased focus on national security risk, states normally

resort to foreign investment law to prevent inappropriate levels of foreign influ-

ence in the national economy, guarantee important domestic industries not to be

controlled by foreign investors, and prevent leading technologies from being

acquired by foreign investors to maintain competitiveness in world markets.

Typical measures include: regulating foreign investors’ market access to national

security-sensitive industries, maintaining state monopolies in such industries, or

introducing reviewal regimes on national security grounds.

6

National security

concerns have been a major basis on which host countries have introduced new

restrictions and updated current provisions in foreign investment law,

7

creating a

new trend in recent years especially among big world economies. For instance,

the United States enacted the Foreign Investment Risk Review Modernization

Act in 2018 to tighten the national security scrutiny of M&As.

8

In 2019, the

European Union (EU) established an EU-wide FDI screening framework on secu-

rity grounds.

9

In 2021, the United Kingdom passed the National Security and

Investment Act to grant the Secretary of State the “call-in” power on national se-

curity grounds in M&As.

10

In December 2020, China also issued new measures

3. See ESPLUGUES, supra note 2, at 161; Alison Jones & John Davies, Merger Control and the Public

Interest: Balancing EU and National Law in the Protectionist Debate, 10 EUR. COMPETITION J. 453, 455

(2014).

4. For example, it is speculated that takeovers of foreign undertakings by Chinese SOEs carry political

motives. See Angela Huyue Zhang, Foreign Direct Investment from China: Sense and Sensibility, 34 NW. J.

INT’L L. & BUS. 395, 398 (2014). For an overall discussion of the potential national security risks brought by

SOE investors to host countries, see ESPLUGUES, supra note 2, at 214–216.

5. See UNCTAD, The Protection of National Security in IIAs, 1-2, UNCTAD/DIAE/IA/2008/5

(2009); UNCTAD, World Investment Report 2017 - Investment and the Digital Economy, 104,

UNCTAD/WIR/2017 (2017); ESPLUGUES, supra note 2, at 163.

6. UNCTAD, World Investment Report 2016 - Investor Nationality: Policy Challenges, 97,

UNCTAD/WIR/2016 (2016).

7. See, e.g., UNCTAD, World Investment Report 2015 - Reforming International Investment

Governance, 104, UNCTAD/WIR/2015 (2015); World Investment Report 2018 - Investment and New

Industrial Policies, 83-84, UNCTAD/WIR/2018 (2018).

8. Foreign Investment Risk Review Modernization Act of 2018, H.R. 5515, 115th Cong. (2018).

9. Regulation 2019/452 of the European Parliament and of the Council of 19 March 2019

Establishing a Framework for the Screening of Foreign Direct Investments into the Union, 2019 O.J. (L

79 I) 1.

10. National Security and Investment Act 2021, c. 25 (UK).

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