The Foreign Investment Law is a

law of the People's Republic of China The Law of the People's Republic of China, officially referred to as the socialist rule of law with Chinese characteristics, is the legal regime of China, with the separate legal traditions and systems of mainland China, Hong Kong, and Macau. C ...

governing

foreign direct investment A foreign direct investment (FDI) is an ownership stake in a company, made by a foreign investor, company, or government from another country. More specifically, it describes a controlling ownership an asset in one country by an entity based i ...

in China. The law was adopted by the

National People's Congress The National People's Congress (NPC) is the highest organ of state power of the People's Republic of China (PRC). The NPC is the only branch of government in China, and per the principle of unified power, all state organs from the Sta ...

on March 15, 2019, and came into effect on January 1, 2020. It replaces the Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures, the Law of the People's Republic of China on Wholly Foreign-owned Enterprises, and the Law of the People's Republic of China on Sino-Foreign Cooperative Joint Ventures.

History

Soon after China's

reform and opening up Reform and opening-up ( zh, s=改革开放, p=Gǎigé kāifàng), also known as the Chinese economic reform or Chinese economic miracle, refers to a variety of economic reforms termed socialism with Chinese characteristics and socialist market ...

, the country adopted its first law on equity joint ventures in 1979, and the laws on wholly foreign-owned enterprises and cooperative joint ventures were enacted in the 1980s. Over the past decades, they have provided legal safeguards for foreign firms and promoted foreign investment and cooperation in China. As China becomes one of the world's top recipients of FDI, with some 960,000 foreign-invested enterprises and over 2.1 trillion US dollars of accumulated FDI by the end of 2018, the legal framework for foreign investment needed to be updated in order for further reform and opening up. The unified Foreign Investment Law, replacing the three existing laws, was adopted at the Second Session of the 13th National People's Congress on March 15, 2019, and came into effect on January 1, 2020.

Key provisions

The Foreign Investment Law calls for the gradual elimination of caps on foreign ownership in key Chinese industries, including oil and gas exploration, nuclear fuel production, and some parts of the finance sector. The Law's key provisions are as follows: * It defines "foreign investment" as the investment activity directly or indirectly conducted by a foreign natural person, enterprise, or other organization, including establishing a foreign-funded enterprise in China; acquiring shares, equities, property shares, or any other similar rights and interests of a local enterprise; making investments to initiate a new project independently or jointly with any other investor; and making investment in any other way stipulated by laws or regulations. * The government implements the management systems of pre-establishment national treatment and negative list for foreign investment. Among the areas on the negative list were investing in the exploration and

mining Mining is the Resource extraction, extraction of valuable geological materials and minerals from the surface of the Earth. Mining is required to obtain most materials that cannot be grown through agriculture, agricultural processes, or feasib ...

rare earths The rare-earth elements (REE), also called the rare-earth metals or rare earths, and sometimes the lanthanides or lanthanoids (although scandium and yttrium, which do not belong to this series, are usually included as rare earths), are a set of ...

, radioactive minerals, and tungsten. * The competent departments for commerce ( Ministry of Commerce) and for investment (

National Development and Reform Commission The National Development and Reform Commission (NDRC) is the third-ranked executive department of the State Council of the People's Republic of China, which functions as a macroeconomic management agency. Established as the State Planning C ...

) are delegated with the major responsibility to promote, protect, and manage foreign investment. * All national policies on supporting the development of enterprises shall equally apply to foreign-funded enterprises in accordance with the law. The government establishes a service system for foreign investment, and provides foreign investors and foreign-funded enterprises with consultation and services in respect of laws and regulations, policies and measures, investment project information, and other aspects. * The government is not to expropriate any investment made by foreign investors. Under special circumstances, the government may expropriate or requisition an investment made by foreign investors for public interests, in accordance with the law. Such expropriation or requisition shall be made pursuant to statutory procedures, and fair and reasonable compensation will be given in a timely manner. * A foreign investor may freely transfer inward and outward its contributions, profits, capital gains, income from asset disposal, royalties of intellectual property rights, lawfully obtained compensation or indemnity, income from liquidation, and so on within the territory of China in CNY or a foreign currency. * The government protects the

intellectual property rights Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...

and

trade secret A trade secret is a form of intellectual property (IP) comprising confidential information that is not generally known or readily ascertainable, derives economic value from its secrecy, and is protected by reasonable efforts to maintain its conf ...

s of foreign investors and foreign-funded enterprises, and encourages technology cooperation on the basis of free will and business rules. It bans forced technology transfers. * The government establishes a safety review system for any foreign investment affecting, or having the possibility to affect,

national security National security, or national defence (national defense in American English), is the security and Defence (military), defence of a sovereign state, including its Citizenship, citizens, economy, and institutions, which is regarded as a duty of ...

. In 2022, the negative list restrictions were lifted. The government also issued a positive list of industries where foreign investment is encouraged.

Comments

Wang Chen, vice chairman of the NPC Standing Committee, said the Law shows China's will and determination to follow through with reform and opening up in a new historical context, and that "it is a full testament to China's determination and confidence in opening wider to the outside world and promoting foreign investment in the new era." Vivian Jiang, vice chair of Deloitte China, said the Law sends the signal of "greater transparency", and will "boost Chinese market's appeal to foreign capital." Joerg Wuttke, president of the European Union Chamber of Commerce in China, said the Law puts a "strong emphasis on preventing Chinese entities from forcing foreign companies to transfer valuable technology" in order to do business in China, while improving protection of trade secrets. In the view of economist Stephen Roach, the Law's call for the phasing out of caps on foreign ownership in various key industries reduces the need for joint ventures in China and promotes direct acquisitions by foreign enterprises.{{Rp, page=84 Jake Parker, senior vice president at the U.S.-China Business Council, said the Law still falls short of "specifying what kinds of trade secret disclosures will be prohibited, and clarifying which kinds of administrative departments the provisions on technology transfer may apply to." It is also "vague on how communication channels between government agencies and foreign entities will be managed, and how feedback will be incorporated."

References

Laws of China Economy of China Foreign direct investment Chinese business law Investment in China 2019 establishments in China 2020 establishments in China 2020 in Chinese law Law of the People's Republic of China 2019 legislation 2019 in Chinese law

History

Key provisions

Comments

See also

References