Published: Sun, March 17, 2019

China agrees to foreign investment law, pledges cooperation with US, European firms

China agrees to foreign investment law, pledges cooperation with US, European firms

After almost four years of discussion and revision, the Foreign Investment Law, a legal basis for the utilization of foreign capital in China in the new era, was finally passed at the second session of the 13th National People's Congress on the March 15. Before the new law, the negative list had not been implemented uniformly across the country. At the same time, the structure of the laws was prioritized over the details of the laws, which have set the stage for reform and opening-up.

Some law experts and business consultants have expressed skepticism about how effective the law will be in protecting foreign firms from compelled technology transfers, given a lack of rule of law in China.

By the end of 2018, about 960,000 foreign-invested enterprises had been set up in China, with the accumulated foreign direct investment exceeding 2.1 trillion US dollars. Foreign investment has become an important driver of China's economic and social development. These include subsidising of industry, limits on access for foreign companies and alleged theft of intellectual property.

Donald Trump said negotiations between the United States and China trade talks should conclude in four weeks.

Aside from foreign investors, local businesses will benefit from the law, Xinhua reported. In the past five years, China's utilization of foreign capital has increased against the backdrop of a decline in foreign direct investment flows worldwide.

Both the European Union and American trade chambers had urged China to consider having a single Company Law to govern both foreign and domestic enterprises, as is common in many countries.

"The new law promises more security for foreign companies investing in China", Ohoven said, while urging German companies to take advantage of the new opportunities for cooperating with Chinese partners.

In addition, the new law has also met many demands raised previously by foreign businessmen.

This has dispelled the concerns of foreign enterprises on the exclusion of their products from government procurement.

China says the law will improve the openness, transparency and predictability of the investment environment, establish equal treatment for foreign and domestic investors, and bar forced technology transfers - a focal point of trade tensions with the U.S. The level of inbound M&A, which stood at a record US$56 billion in 2018, is projected to grow still further as the new Foreign Investment Law, signed on 15 March 2019, kicks in on 1 January 2020.

Beijing will introduce a series of regulations and documents in accordance with the foreign investment law to better protect the legitimate rights and interests of foreign investors, Chinese Premier Li Keqiang told a press conference after the conclusion of the legislative session.

The global business community appears to have welcomed the new investment law and consider it a move in the right direction. In such cases, the state will be ordered to offer compensation to ensure that no unfair treatment occurs. Such a principle is also reflected in other aspects such as standard setting, government procurement, financing, land use, bidding and oversight.

"Enforcement will be the key metric for evaluating success, but the business community has collectively advocated for years for the Chinese government to impose criminal penalties for infringement, we need to recognise this positive progress to that end".

Like this: