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China Proposes Security Screens on Foreign Takeovers

China is tightening controls on foreign takeovers of Chinese companies, adding a requirement for national security reviews to a proposed anti-monopoly law, news reports said Monday.

Beijing stepped up scrutiny of foreign takeovers after an uproar in 2005 over U.S. investment fund Carlyle Group's offer to buy a Chinese maker of construction equipment. Critics complained that such deals might threaten China's economic security.

The latest step would be the first time a requirement for a national security review has been enshrined in law, newspapers and the Xinhua News Agency reported. They said the new version of the law was taken up for the first time by lawmakers during the weekend.

The reports gave no details of what would be deemed a threat to national security.

Such examinations have been required under Ministry of Commerce regulations issued last year, Xinhua said. Before that, only acquisitions worth more than US$100 million required a review.

Beijing tightened restrictions after Carlyle's bid for Xugong Group Construction Machinery prompted a nationalist outcry.

Xugong said in March that Carlyle had agreed to reduce the size of the stake it was trying to buy to a minority 45% share.

China received some US$60 billion in foreign investment last year, but foreign takeovers of existing companies are still unusual.

After the uproar over the Carlyle bid, the government announced that makers of construction equipment must consult Beijing before selling large stakes to foreigners.

Chinese regulators also have held up a bid by European steelmaker Arcelor-Mittal to buy a mid-size Chinese competitor, Laiwu Steel. A Laiwu spokesman said in March that Chinese officials wanted more money and unspecified conditions to protect China's domestic steel industry.