Foreign Investment and China’s Mobilization for National Defense†
Table of Contents
- The National Defense Mobilization Law
- Expropriation and Foreign Investment
- Reassurance for Foreign Investors
Estimated Reading Time
- 6 min
(Publicdomainpictures.net)
October 1, 2026 marks the 77th anniversary of the establishment of the People’s Republic of China and the coming into effect of the country’s revised National Defense Mobilization Law. This is the first revision of this law since it was promulgated in 2010. In response to concerns that the revision, which includes significant changes, may be a signal of China’s preparation for “a long-term, large-scale war”, a spokesperson for China’s Ministry of National Defense urged concerned parties not to “overinterpret” the revision.
“This change brings the ‘expropriation’ provisions under China’s Foreign Investment Law into the spotlight.”
This response, however, is unlikely to put foreign investors’ minds at ease. The revised law now authorizes the Chinese government to not only requisition but also expropriate “civilian resources” under broadly defined circumstances. This change brings the “expropriation” provisions under China’s Foreign Investment Law into the spotlight. It is now incumbent upon Chinese authorities to provide detailed explanations of these provisions in order to boost foreign investors’ confidence.
The National Defense Mobilization Law
In August, China revised the National Defense Mobilization Law to, among other changes, broadly define the term “national defense mobilization”. The term now refers to “activities in which the State, for the purpose of addressing threats to national sovereignty, unity, territorial integrity, security, and development interests, takes necessary measures in accordance with law to ensure a rapid transition from peacetime to wartime and to transform economic and social strength into national defense strength [emphasis added]”. The meaning of the emboldened words, especially “development interests”, is unclear.
In addition, under the revised law, the guiding principles for “national defense mobilization” now include “upholding the leadership of the Chinese Communist Party”, “implementing Xi Jinping Thought on strengthening the military”, “upholding the overall national security outlook”, and “implementing the military strategic guidelines for the new era”.
All of these broadly phrased expressions allow an expansive reading of the revised law, which provides added details concerning the “preparation and implementation of national defense mobilization”. A notable change regarding “civilian resources” involves authorizing the Chinese government to expropriate these resources in situations where, following China’s decision to “implement national defense mobilization”, “stockpiled supplies cannot meet mobilization needs in a timely manner”. Prior to this change, only requisition of these resources was authorized. The revised law defines “civilian resources” to cover “facilities, equipment, means of transport, premises, and other resources owned or used by organizations and individuals” and which are “for use in social production, services, and daily life”.
The revised law does state that “fair and reasonable compensation” shall be provided for “direct economic losses resulting from requisition or expropriation”. It is, however, unclear how the compensation will be calculated. What is clear is that if an enterprise “refuses or delays the requisition or expropriation of civil resources”, the enterprise may be fined. Further, if any violation of the revised law constitutes a crime, the violator may be held criminally liable.
Expropriation and Foreign Investment
China’s Foreign Investment Law, which became effective on January 1, 2020, provides additional, albeit limited, guidance on expropriation and related compensation. This law generally prohibits the expropriation of foreign investors’ investments in China. However, according to the law, “under special circumstances”, China may, “for the needs of the public interest”, “expropriate or requisition” such investments in accordance with law. The law requires such expropriation or requisition to be conducted “in accordance with statutory procedures” and “fair and reasonable compensation” to be provided “in a timely manner”.
On the day when the Foreign Investment Law became effective, so did a regulation issued by the State Council aimed at providing more details to implement the law. On expropriation, the regulation provides that “timely compensation shall be provided based on the market value of the expropriated investment” and that any foreign investor objecting to China’s expropriation decision “may, in accordance with law, apply for administrative reconsideration or initiate an administrative lawsuit”.
“If the above provisions are read together with the revised National Defense Mobilization Law, foreign investors whose investments in China are expropriated during the implementation of national defense mobilization must wonder […].”
If the above provisions are read together with the revised National Defense Mobilization Law, foreign investors whose investments in China are expropriated during the implementation of national defense mobilization must wonder how much their investments are still worth in a market facing potential conflicts. Further, in these situations, administrative reconsideration or litigation may not be available to the investors seeking to challenge the expropriation decisions because even the revised National Defense Mobilization Law has a provision foreseeing such a scenario:
Where activities such as litigation, supervisory investigations, administrative reconsideration, arbitration, or state compensation [proceedings] cannot proceed normally due to the State’s issuance of a mobilization order, the provisions concerning […] the suspension of proceedings shall apply, unless otherwise provided by law.
[emphasis added]
Reassurance for Foreign Investors
In July 2023, when the State Council issued its Opinions on Further Optimizing the Environment for Foreign Investment and Intensifying Efforts to Attract Foreign Investment, it emphasized the need to “continue strengthening the protection of foreign investment”. To this end, apart from vowing to strengthen the protection of intellectual property rights, the State Council specified that when “policies and measures involving foreign economic and trade [activities]” are formulated, Chinese authorities should enhance “transparency and predictability”, solicit “the views of foreign-invested enterprises” in accordance with law, and set reasonable “transition periods” for “newly introduced policies and measures”.
Following the spirit of the above document, Chinese authorities should provide detailed explanations regarding how the protection of foreign investments can be strengthened during the implementation of national defense mobilization. Any delay in providing such explanations could compromise China’s extensive effort to attract more foreign investment and improve its economy.
- The citation of this article is: Dr. Mei Gechlik, Foreign Investment and China’s Mobilization for National Defense, SINOTALKS.COM®, SINOTALKS® In Brief, Sept. 30, 2026, https://sinotalks.com/inbrief/foreign-investment-national-defense-mobilization.
- The original, English version of this article was edited by Nathan Harpainter. The information and views set out in this article are the responsibility of the author and do not necessarily reflect the work or views of SINOTALKS®. ↩︎
