NewLawProtectsForeignInvestors

46CHINA TODAYON March 15, the Second Ses-sion of the 13th National Peo-ple’s Congress (NPC) reviewed and approved the high-profileForeign Investment Law. Leading up to the approval, Wang Chen, vice chair-man of the NPC Standing Committee, pointed out in his explanation of the Foreign Investment Law (Draft) that foreign investment legislation follows and reflects four important principles: highlighting the main theme of actively expanding opening-up and promoting foreign investment, adhering to the positioning of the foreign investmentBy staff reporter LU RUCAINew Law ProtectsForeign Investors’ Interestslaw as a fundamental law, adhering to the integration of Chinese characteris-tics and international regulations, and adhering to the accordance of domestic and foreign investment.Zhang Yuyan, a member of the Na-tional Committee of the Chinese Peo-ple’s Political Consultative Conference (CPPCC) and director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, believes that as global trade protection-ism gains a stronger foothold, China, as a responsible power, has firmly ex-pressed its position and determination to maintain economic globalization. This will be done by formulating theForeign Investment Law to encourage free flow of cross-border capital and support trade liberalization.Why Should a New Law Be Formulated ?Since the reform and opening-up kicked off in 1978, China has attracted a great deal of foreign investment. By the end of 2018, a total of 960,000 foreign-invested enterprises were set up in China, with the cumulative actual use of foreign capital exceeding US $2.1 tril-lion. From a set of figures, it is easier to understand the radical changes in the scale of China’s use of foreign capital: In 1983, China actually used foreign directDeputies vote during the closing meeting of the Second Session of the 13th National People’s Congress (NPC) at the Great Hall of the People in Beijing on March 15, 2019.eConomy / new VisTas47April 2019investment of US $920 million. By 2018, this figure increased to US $134.97 bil-lion, 147 times that of 1983.Not only has there been a sharp increase in the amount of foreign in-vestment, but also the domestic and international economic environment that China is facing has undergone tre-mendous changes compared with the initial stage of its reform and opening-up. Therefore, the three foreign invest-ment enterprise laws (the law on joint Chinese and foreign investment enter-prises, the law on foreign-funded enter-prises, and the law on Chinese-foreign contractual joint venture, collectively referred to as the “three foreign invest-ment laws”), which were promulgated at the initial stage of reform and opening-up, have become difficult to adapt to the new situation facing China’s opening-up and utilization of foreign capital, and the need for China to build a new open economic system.Zhang said the unveiling of the For-eign Investment Law is of great neces-sity and that foreign capital, especially technology-intensive foreign invest-ment, will play an important role in promoting China’s economic growth in the long run. Therefore, China needs to give foreign merchants a favorable legal environment, which is also very impor-tant for cultivating international eco-nomic cooperation and implementing all-round opening-up. “The law plays an important role in reducing uncertainty and transaction costs, and serves as a response to some international con-cerns, such as policy transparency, intel-lectual property protection, and a level playing field,” said Zhang.Why Now?On December 23, 2018, the Foreign Investment Law (Draft) was submitted to the NPC Standing Committee for deliberation. On January 29, 2019, the Standing Committee conducted a sec-ond review of the draft. On March 15, the law was officially introduced.Some people believe that not enough time was spent on the deliberation of the law, and the process of introduction was too hasty. But is this the truth?In fact, after years of internal re-search, as early as the beginning of 2015, the Ministry of Commerce solicited public opinion on the Foreign Invest-ment Law (Draft) for the first time. However, due to the immature condi-tion of the integration of the “three for-eign investment laws” into one, it was not until March 4, 2018 that the law was mentioned again at a press conference to introduce legislative projects in 2018 during the First Session of the 13th Na-tional People’s Congress.The new law is more concise than the 2015 version. The implementation of the pre-establishment national treat-ment plus the negative list management system is more clear and thorough, reflecting the requirements of a higher level of investment liberalization and facilitation.According to Duan Xiaoying, senior vice president of General Electric (GE), GE had the honor of participating in the discussion process of the draft law in recent years. “The law clearly stipulatesthat foreign investment in China shall be subject to pre-establishment national treatment plus the negative list manage-ment system. On the issue of national treatment and intellectual property pro-tection that foreign-invested enterprises are most concerned about, there are statements based on transparency, pre-dictability, and fairness, including that overseas-funded enterprises can partici-pate in the standardization work and government procurement on an equal footing,” said Duan, adding that a uni-fied Foreign Investment Law represents a crucial step for China to move toward deeper institutional opening-up.What Are the Concerns the Law Will Deal with?Equal enjoyment of government sup-port policies, equal participation in stan-dardization work, fair participation in government procurement, and the same financing facilitation as domestic enter-prises – these are the current demands of overseas-funded companies in China, and now the introduction of the Foreign Investment Law is giving them much needed reassurance. The legislative pro-tection of fairness after admission will enhance the attractiveness of the Chi-nese market to foreign investment.China’s national legislature on March 15, 2019 adopts the Foreign Investment Law at the closingmeeting of the Second Session of the 13th National People’s Congress. The law will become effectiveon January 1, 2020.eConomy / new VisTasIn addition, “compulsory technol-ogy transfer” is also a concern for some foreign investors to China. In fact, China clearly stated in its Accession Protocol to the WTO that China does not approve foreign investment on the premise of technology transfer require-ments. In the trade agreements signed by China and related parties, China also made corresponding commitments and has fulfilled those commitments. In the Foreign Investment Law, it is further clarified that “the administrative organs and their staff members must not use administrative means to force the trans-fer of technology,” which will thoroughly eliminate investor concerns.After three years of piloting in the Free Trade Zone, China abolished the approval system for the establishment and change of foreign-funded enter-prises nationwide at the end of 2016, and only the fields on the negative list are subject to the approval procedure. On the foreign side, there is no need to worry about the pressure to transfer technology during the approval process. The law confirms that the businessapproval and filing procedures for theestablishment and change of foreign-invested enterprises will be cancelled.In addition to investment promotionand protection, the law also clearly pro-vides preferential measures for foreigninvestors, government commitments,negative list of foreign investment ac-cess, related access systems, foreigninvestment information reporting sys-tems, and security review systems tofundamentally protect the rights andinterests of investors.Toward InstitutionalOpennessAccording to the Global InvestmentTrends Monitor released by the UnitedNations Conference on Trade and De-velopment, foreign direct investmentin countries around the world droppedby 19 percent in 2018. However, thevolume China had attracted duringthe same period increased against thetrend. According to data released by theMinistry of Commerce, China’s actualuse of foreign capital reached a recordhigh in 2018, and the newly establishedforeign-invested enterprises nationwideincreased by 69.8 percent year-on-year.According to Zhou Xuezhi, assis-tant research fellow at the Institute ofWorld Economics and Politics underthe Chinese Academy of Social Scienc-es, the introduction of the law meansthat China has taken substantial stepstoward institutional openness. The lawclearly stipulates that foreign invest-ment in China is subject to the pre-establishment national treatment plusnegative list management system. “Thisis the current popular practice in theworld, reflecting China’s willingness tointegrate with international models inattracting foreign investment. It alsohighlights China’s determination tocontinue to expand its openness andpromote openness,” said Zhou.According to Yao Ling, deputy di-rector of the Department of EuropeanStudies at the Chinese Academy ofInternational Trade and Economic Co-operation of the Ministry of Commerce,FDI into China119.56126.27 131.0426,575US $6.85 billionUS $7.11 billionUS $9.66 billionUS $11.86 billionUS $8.79 billion 20142014 2014201520152016201620172017201820182015201620172018Newly Established FDI Enterprises EU FDI into ChinaUnit: US $ billionNewly Established Enterprises EU FDI into China year-on-year growth year-on-year decreaseUnit: US $ billion48CHINA TODAY49April 2019Scientific research,technology services, and geological explorationthe introduction of the law further demonstrates China’s determination to unswervingly expand its opening-up and deepen reforms. It reflects China’s consistent position and practical ac-tions in support of trade and invest-ment liberalization and facilitation, and is also conducive to foreign investors’ confidence and long-term planning for the Chinese market.Unswervingly Improving the Business EnvironmentAt the end of October 2018, the World Bank released the Doing Business 2019. China ranked 46th in the ease of doing business category, making it to the top 50 for the first time. The coun-try also became one of the top 10 most significant economies in the business environment improvement category. In 2018, China issued two documents to promote foreign investment in the country, the Measures for Actively Using Foreign Capital to Open Wider to the Outside World in January and Measures to Promote Foreign Investment Growthin August. “The introduction of two important policy documents within one year is rare in history,” said Ning Jizhe, deputy director of the National Development and Reform Commission. A total of more than 40 specific policy measures have been released to expand opening-up, create a level playing field, and strengthen investment promotion. In addition, China revised the Guidance Catalogue for Foreign Investment In-dustries in 2015 and 2017, and reduced the restricted fields of access to foreign investment by 65 percent.China’s initiatives to promote foreign investment have also received posi-tive feedback from foreign companies. According to the 2019 China Business Climate Survey Report released by the American Chamber of Commerce in China (AmCham China) on February 26, 2019, 62 percent of member companies regard China as the top priority of their recent global investment plans, and 50 percent of members believe that China will take measures to further open the market to foreign companies. “Bright prospects for domestic consumption and a gradually improved investment envi-ronment have helped China remain a top investment destination globally,” said Tim Stratford, chairman of AmCham China.While paying attention to the con-tents of the law, potential foreign inves-tors are also paying special attention to the details of how the law will be imple-mented after its adoption. “How to im-plement the law after the adoption, how to remedy problems when they occur, how to make an administrative appeal, or how to go to law are all extremely im-portant to foreign-funded enterprises,” said French Ambassador to China Jean-Maurice Ripert. When the AmCham China was invited to give suggestions for the draft law, its member companies also hoped to formulate detailed rules and regulations as soon as possible at the operational level.“To regulate others is to regulate one-self. Establishing a system-based and rule-based investment environment is a vital part of a high-level opening-up,” said Zhang. CTop 5 Industries by FDI Projects。