Draft on Foreign M&As Gets 2nd Reading

China's top legislature last week read for the second time the draft anti-monopoly law which requires foreign purchases of Chinese companies to be scrutinized to ensure there is no negative effect on the national security.

The draft of China's first anti-monopoly law was submitted to the 28th session of the Standing Committee of the National People's Congress for a second reading.

"Foreign mergers and acquisitions of domestic companies or foreign capital investing in domestic companies' operations in other forms should be examined according to relevant laws and regulations if the cases are related to national security," the draft reads.

According to official statistics, the number of foreign M&A cases only accounted for five percent of all forms of foreign direct investment in China annually before 2004. However, the proportion rapidly increased to 11 percent in 2004 and nearly 20 percent in 2005.

Foreign companies have even begun to acquire major state-owned enterprises or companies with famous brands in recent years, arousing concerns about China's economic security.

Zhang Yansheng, director of the International Economic Research Institute under the National Development and Reform Commission, said it is crucial to require foreign purchases of domestic companies to go through stringent state security checks as well as a thorough anti-monopoly monitoring.