(Bloomberg) -- The Netherlands will for the first time be able to block foreign takeovers of Dutch companies operating in vital sectors if a deal raises national security concerns, according to legislation announced on Wednesday.

The Investments, Mergers and Acquisitions Security Test Act, which will come into effect Thursday, will enable the Dutch government to limit the size of investments or block a deal entirely on the basis of national security. 

The legislation is aimed at protecting “knowledge-intensive companies against unwanted knowledge transfer,” according to a statement published on the Defense Ministry’s website.

Although the government didn’t refer to potential risks from corporate actions taken by a specific country, the Netherlands has been rethinking its ties with China, one of its biggest trading partners. Earlier this year, the Dutch government agreed to join the US effort to further restrict exports of chip technology to China. 

Countries from Canada to the UK routinely use their power to scrutinize and sometimes block investments or acquisitions on national security grounds.

In 2018, Chinese firm Wingtech Technology Co. acquired Dutch chipmaker Nexperia for 25.2 billion yuan ($3.6 billion). Wingtech took control of the company by consolidating a slew of stakes in Nexperia, which had been hived off from NXP Semiconductors NV to a consortium of Chinese investors. 

The UK later cited national security concerns when it ordered Wingtech’s Dutch subsidiary in November to undo its acquisition of Britain’s biggest microchip factory more than a year after the deal closed.

Big Partner

“If you look at Europe — after Germany — we are the largest country in Europe with which China does business,” Minister for Economic Affairs and Climate Policy Micky Adriaansens was cited Tuesday as saying in an interview with Dutch newspaper De Telegraaf. 

While the minister said the Netherlands’s trade relationship with China is very important, she argued the government needed to be more alert to the risk that critical knowledge and ownership in vital industries could fall into the hands of certain countries. 

“We are not going to say: every Chinese investment is bad,” Adriaansens said. “I don’t think we should decouple from China.”

But investments should be prevented “where it can affect our national security,” she said.

©2023 Bloomberg L.P.