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Home > Competition
You cannot miss the gold rush under China's new Foreign Investment Law

It seems that Sino-US trade friction will come to an end.  As such, China will be more open and welcoming to investments from outside China.  In addition, China is re-calibrating the laws and regulations to the effect that foreign-invested enterprises, vis-à-vis Chinese domestic companies, could be treated more equally and amicably than before, all of which will culminate in the new Foreign Investment Law.


On January 29, 2019, the eighth session of the thirteen National People's Congress ("NPC") Standing Committee, China's top legislature, has reviewed the Foreign Investment Law of the People's Republic of China (Draft) for the second time.  Compared with the first draft submitted one month ago, the second draft is more concerned with providing a sound market environment that is fair and equal for foreign companies.  


On January 30, the Standing Committee of the thirteen NPC has decided to submit the revised draft to the second session of the thirteen NPC in March for final approval. 


In response to the strong repercussions of the first draft, the second draft has made a number of revisions and improvements, including the improvement of the pre-establishment National Treatment and the negative list management mode; the new anti-monopoly investigations for foreign investors that merge with Chinese domestic companies; the clarification of the organization form of foreign-invested enterprises, as well as the administrative penalties from 100,000 yuan (US$14,890) to 500,000 yuan (US$74,450) for foreign investors and foreign-invested enterprises who refuse to submit the required investment information.


What is more important, the legislative body tries to strengthen foreign investors’ confidence amid the risks of the global economic slowdown by treating all enterprises registered in China as equals.  For instance, Article 9 of the draft Foreign Investment Law states that the state policies which support the development of domestic enterprises shall be equally applicable to foreign-invested enterprises.  Compared with the first draft, the restrictive clause in applying the supporting policies “unless otherwise stipulated under laws and administrative regulations” has been removed.  


In furtherance, Article 14 stipulates that the State encourages and guides foreign investors to invest in specific industries, fields and regions, and grant preferential treatment in accordance with laws, administrative regulations or the regulations of the State Council.


In addition, the compulsory standards set by the State shall equally apply to foreign-invested enterprises.  The State protects foreign-invested enterprises' fair participation in government procurement activities.  And foreign-invested enterprises may get access to financing by means of the public offering of shares, corporate bonds or other securities and so on


Once adopted, the Foreign Investment Law will replace the three existing laws on Chinese-foreign equity joint ventures, contractual joint ventures and wholly foreign-owned enterprises.


In short, the Foreign Investment Law reflects a win-win resolution from the Sino-US trade friction.  With the adoption of the draft Foreign Investment Law, there will be a new gold rush attracting all different kinds of foreign investors coming into the Chinese market.


Henry Chen, licensed to practice law in China and New York, is a senior partner of Dentons Shanghai Office.  Before joining Dentons, Henry was AP Compliance Director of Ford.  Henry is the legal counsel of one of the biggest Internet search engine companies for its autonomous driving projects covering data integrity and security, protection of commercial secrets under the context of cyber security, compliance with Cyber Security Law, autonomous survey and mapping, privacy, risk management on autonomous driving accidents and car call-back, risk management on network penetration and safety.  In addition to TMT areas, Henry also handles traditional compliance issues on FCPA, anti-fraud investigation, compliance management system, corporate matters and dispute resolutions.  Henry's email is Henry.Chen@dentons.cn



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