Three Highlights in China’s new investment law

Zhu Jiandi, a deputy to the 13th National People’s Congress (NPC) from Shanghai is giving a thumb to the remarks of another deputy Xu Zheng at a panel meeting of the Shanghai legislators held on March 10, 2019. (Photo by Weng Qixu from People’s Daily Online)

The “negative list” system, equal treatment of domestic and foreign investment as well as intensified protection of legitimate rights and interests of foreign investors have made up three biggest highlights of China’s newly-drafted foreign investment law, experts pointed out, in the belief that the rollout of the new law will help China optimize its business investment. The draft, which was submitted to the ongoing session of the 13th National People’s Congress (NPC) for deliberation on March 8, is expected to be put up for a vote by nearly 3,000 national legislators on March 15. Before the submission, the draft law has gone through two readings by the NPC Standing Committee in last December and this January respectively. Once adopted, the new law will replace three existing laws on Chinese-foreign equity joint ventures, non-equity joint ventures, and wholly foreign-owned enterprises to serve as China’s fundamental law on foreign investment.

After China embarked on the journey of reform and opening up, China has been providing an institutional guarantee for its expansion of opening up and utilization of foreign investment with a legal system based on the three existing laws. But now the three laws could hardly catch up with the changing requirements in pushing ahead with reform and opening up in the new era and in building a new system of open economy, which means that a unified and overarching law on foreign investment has to be enacted based on previous experience. Data indicated that as of last November, there were 950,000 foreign-funded companies registered in China that have brought more than $2 trillion into the country. The figure indicates that foreign investment has grown into a key driver of China’s economic and social progress.

Foreign investments, especially those technology-intensive ones, will play a long-term and key propelling role for economic growth of China, the biggest developing country in the world, said Zhang Yuyan, director of the Institute of World Economics and Politics under the Chinese Academy of Social Sciences. Against such backdrop, the country needs to provide foreign investors with a sound legal ecosystem, he said, adding that it is also a key part of China’s efforts to foster international economic cooperation and push ahead all-round opening up. Putting how to promote and protect foreign investment on its top agenda, the law is helpful in stabilizing the expectation and confidence of foreign investors, said Lam Lung On, chairman of Yuzhou Properties. The law requires the authorities to implement policies of high-level investment facilitation and liberalization, build a legal system that protects the legitimate rights and interests of foreign investors, establish a mechanism to restrain the role of governmental departments and resolve complaints from foreign companies, added Lam, also chairman of Hong Kong Chinese Importers’& Exporters’ Association. Experts also listed three biggest highlights of the law, namely the “negative list” system, a unified management standard of domestic and foreign investment, as well as intensified protection of legitimate rights and interests of foreign investors.

No. 1: “Negative list” system

The draft law stipulates that China will manage foreign investment according to the system of pre-establishment national treatment plus a negative list. This means that foreign investors and their investments shall enjoy treatment no less favorable than that afforded to Chinese investors and their investments at the stage of investment access. The “negative list” management system means that the country will specify the special management measures for entry of foreign investment in certain fields, and grant foreign investors to national treatment in sectors that are not on the list. Based on the new law, the approval and registration procedures for setting up or business alteration of foreign-invested enterprises will be abolished and replaced by the system of pre-establishment national treatment plus a negative list, said Wang Chengjie, vice chairman and the Secretary-General of China International Economic and Trade Arbitration Commission. The draft, which adopts a unified set of rules with the provisions to manage domestic firms, encourages an all-around implementation of the national treatment to provide domestic and foreign companies with a level playing field, he elaborated, adding that the law also enables China to further keep in step with international norms and press ahead with investment liberalization and facilitation. It constituted the core value and biggest highlight of the legislation of foreign investment law, Wang concluded. Upon the adoption of the law, relevant departments and local governments can no longer formulate procedures of market entry in a rash way, and foreign investment can access to all areas, not on the prohibited or restricted list, said Xiao Jiangping, the director of Competition Law Research Center of Peking University. Foreign investment will be treated equally in rules, rights, and opportunities with domestic capitals, he added.

No.2: Domestic, foreign investment to be managed under a unified set of law

 China, in its report to the 19th National Congress of the Communist Party of China (CPC), pledged that all businesses registered in China will be treated equally. Areas, where foreign investment is prohibited or restricted, will be detailed in the negative list, while industries that are not on the list will be fully open, with domestic and foreign firms enjoying the same treatment, Xiao expounded on the draft provisions. Describing it as a fundamental change to China’s management system of foreign investment, the professor said the law will make the domestic investment environment more open, transparent and predictable. The draft also covers a string of specific measures to provide foreign and domestic firms a fair environment for market competition. The new law, for instance, requires equal applicability of China’s mandatory standards to foreign investors, as well as equal access of the products they produce on Chinese territory to government procurement. “These provisions respond to the long-standing appeals of the foreign investors, ensure the applicability of mandatory standards to all domestic and foreign businesses, and also grant their equal rights to engage in  government procurement,” said Sang Baichuan, director of the Institute for International Business at the University of International Business and Economics in Beijing.

No.3: Protection of legitimate rights and interests of foreign investors

 The law also includes an article to detail how to protect foreign investment, in which it makes clear that the state shall protect the intellectual property rights (IPR) of foreign investors, as well as the legitimate rights and interests of right holders. Technology cooperation based on voluntary agreement and commercial rules is encouraged, the draft said. The new law incorporates more measures to protect the foreign investment than the previous management regulations, said Feng Fan, director of Jiangxi Newstar Law Firm, elaborating that it offers more guarantee and convenience in the protection of the business environment, capital market, IPR, and technologies. It will not only boost foreign investors’ confidence in the Chinese market but also facilitate healthy and orderly development of China’s market economy, he added.

(People’s Daily)