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National security checks that have held up U.S. and other foreign purchases of Chinese businesses became law on Thursday. The anti-monopoly law marks the first time demands for such reviews have been enshrined in China's legal system, bringing together various rules and guidelines enacted as early as 2002. It takes effect next August.

"In addition to an anti-monopoly review, foreign investments that could affect national security must undergo a state security review," Huang Jianchu, head of the national legislature's economic law section, told reporters. Criticism from Congress in 2005 forced China's state-controlled CNOOC (nyse: CEO - news - people ) Ltd. to give up an $18.5 billion takeover bid for the U.S. oil company Unocal Corp. Lawmakers said the deal could jeopardize U.S. security. U.S. business groups, while wary of deterring investment from overseas, generally welcomed the law in hopes that it will provide greater predictability to the process after the CNOOC and Dubai controversies. Despite the national security provisions, the new Chinese law was welcomed by the American Chamber of Commerce in Beijing, which had been consulted in drafting it. The law is a "defining moment in the development of China's legal system, which establishes a basic framework to build a fair, uniform, and national competition law system that benefits consumers by recognizing and preserving the incentives to compete," chamber chairman James Zimmerman said in a statement.

More than 80 other countries also have anti-monopoly laws.

One lawmaker of the Law Committee of the National People's Congress (NPC) has said China's socialist market economy had matured, and the current market circumstance made the introduction of an anti-monopoly law is imperative.

Thirteen years in the making, China's anti-monopoly law seeks to promote fair competition and further open up the economy. It will take effect on Aug. 1, 2008. The law bans monopolistic agreements and practices such as cartels and price-fixing but allows for monopolies that promote innovation and technological advance. Details were hazy and the full text of the law has not yet been released. Analysts have said the law could help China protect its fledgling domestic industries from multinational competition, while others said it would curtail the power of state-owned enterprises. Beijing officials have said the legislation would not discriminate between domestic and foreign companies. Huang said a committee under the State Council, China's Cabinet, would carry out anti-monopoly reviews, but didn't say who would be responsible for national security checks.

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