Much, although not all, of the new restrictions adopted by the US, the EU, the UK, Australia, Japan and South Korea are in response to China’s expansion of its global presence, its perceived unfair economic competitiveness, and its use of economic coercion at different degrees. External perceptions aside, however, it is evident that in China, too, security increasingly trumps openness.
As reiterated during the 20th Party Congress and then in Davos, China still officially promotes opening up and global trade. But many of its policies prepare for a worst-case scenario in which China’s reliance on external actors may be used against it. These the incoming foreign relations law.
Economic security is a cornerstone of China’s all-encompassing concept of national security and national security is viewed as fundamental for China’s economic development. China’s new measures and updates to safeguard economic security are closely linked to its relationship with developments outside of China, especially in the US. However, they are also the result of China’s effort to strengthen its regulatory framework. For example, China adopted its Anti-Foreign Sanctions Law in 2021 to protect itself against potential primary and secondary sanctions by the US, but also to provide a legal justification to already existing practices.
If China continues to develop policies also by weighing the actions of the US, then China is likely to fine tune its own instrument for screening outbound investments should the US adopt an outbound investments screening.
Party and State Leader Xi Jinping has labelled outbound investments a matter of national security. As Beijing tries to boost innovation at home and produce technologies domestically, and the US explicitly targets Chinese innovation with its policies, broader application can be expected.
China introduced a form of screening mechanism for outbound investments in 2018 – the Administrative Measures for Enterprise Outbound Investments (AMEOI). It is currently limited to countries that do not have diplomatic ties with China, which experience domestic unrest or are hit by sanctions that China complies with. Transactions below USD 300 million are exempted but it also applies to foreign subsidies of Chinese companies.
The measures also apply to sensitive industries (including military, communications, media, real estate, energy and illicit industries such as pornography). The wording of the regulation leaves room for its future expansion, such as its application to other sectors and countries.
The global economic security landscape is becoming more complex and filled with new and evolving economic security measures to protect national security and resilience. The changing environment comes in response to China, while China itself adopts policies to protect itself from foreign countries. Three main tensions have emerged and are shaping economic security agendas globally: balancing security and economy; defending and boosting home economic security while avoiding unintended external effects; and the approach to China. In such a situation, the debate on whether to adopt outbound investments screening is one that can bring clarity to some of the tensions that underlie economic security policymaking today.