HONGKONG (Reuters Breakingviews) – China shows foreign investors a carrot and a big stick. The Department of Commerce issued proposals on Monday to ease the restrictions on some overseas investment in mainland stocks. This is a welcome respite from trading tensions. But asking investors to investigate security risks will give officials new clout just as investors have new reasons for their concerns.
Employees posted Chinese and US flags for a meeting between Chinese Transport Minister Li Xiaopeng and US Department of Transportation Minister Elaine Chao at the Ministry of Transport in Beijing, China, on April 27, 2018. REUTERS / Jason Lee / Pool  The proposed rule changes would make it easier for foreign investors to observe so-called "strategic investments" in listed companies. The lock-up period for such investments would fall from the current three years to 12 months. In the meantime, China will reduce the minimum amount investors need or have to manage to qualify.
The gradual opening is particularly welcome, as trade tension increases. But the proposals also have a big catch: China will monitor strategic foreign investment for security risks.
At first glance, this corresponds to the trend to exacerbate foreign investment in the rich world. The US Foreign Investment Committee has eased several attempted Chinese takeovers of US companies in recent months, including Antig Financial's proposed $ 1.2 billion acquisition of MoneyGram International. Several European countries have also tightened controls due to increased Chinese interest.
It is also true that the decisions of quasi-independent Western regulators have gained a political lead. Witness the decision by US President Donald Trump to consider the ZTE Telecommunications Group's near-death experience with US sanction sanctioning companies as a trade chip.
In China, however, the security check is used more as a political weapon. Just consider Qualcomm's recent decision to abandon the acquisition of chipmaker NXP Semiconductors. Although eight other global regulators had signed the agreement, the Chinese State Market Inspectorate, which was created earlier this year to consolidate separate competition authorities, delayed the process until Qualcomm ended its bid. The suspicion is that Beijing used the antitrust authorities to avenge Trump's aggressive trade policy, although the authorities deny it.
The Chinese authorities have long been finding ways to keep foreign buyers away from certain companies and industries. Despite investment furniture, this means that it is unlikely to change in the foreseeable future.
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