Security or Technology? Understanding China’s National Security-Based Foreign Investment Regulatory System

How do countries balance the pursuit of technological advancement with national security in an era of intensifying geopolitical competition? Great-power rivalry has heightened policymakers’ awareness of the risks associated with foreign control of critical industries. At the same time, access to foreign capital and expertise remains essential for driving domestic innovation and sustaining a competitive edge. This article examines how governments navigate this development-security trade-off through an analysis of China’s foreign investment regulatory regime. It shows that China adopts a calibrated, sector-specific approach: when a security-sensitive sector remains technologically underdeveloped, restrictions on foreign investment are often relaxed to attract capital, foster competition, and facilitate technology transfer. Conversely, the presence of advanced technology in a sector does not automatically render it security-sensitive or off-limits to foreign participation. These findings challenge the assumption that advanced technology automatically entails security risks. Instead, they show how states can strategically design foreign investment regimes to balance economic and security objectives, with significant implications for how countries navigate an increasingly fragmented geopolitical landscape.