The Foreign Investment Law of the People's Republic of China (“the Foreign Investment Law”), as adopted at the 2nd Session of the Thirteenth National People's Congress of the People's Republic of China on March 15, 2019, will come into force on January 1, 2020.
As a result, the Law of the People's Republic of China on Chinese-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 Chinese-foreign Cooperative Joint Ventures (jointly called as “the Three Foreign Investment Laws”) shall be replaced accordingly. The Foreign Investment Law will become the basic law to stipulate the foreign investment relationships in China.
Generally speaking, the generation of the Foreign Investment Law complies with the trend of our times.
The purposes of the Foreign Investment Law which are further expanding the country's opening up, vigorously boosting foreign investment and protecting the lawful rights and interests of foreign investors are also the essential function of the said law. Before the Foreign Investment Law, the Three Foreign Investment Laws undertake the same missions and duties.
However, with the new phase of our opening up, special functions are demanded to be acted by law. One of the main demands of the foreign investors who invest in China is their legal rights to be protected by the Chinese government. To offer an effective protection is also the way to attract more foreign investment to China which complies likewise with our basic national policy of our further expanding the country’s opening up. In this situation, the introduction of the Foreign Investment Law has its new mission and duty of the new era.
In recent years, the external economic environment that China faces has changed a lot. China now is confronted with especially the trade disputes and conflicts with the western countries. In this circumstances, how to express more precisely our attitude of opening up, how to promote the foreign investment in China and how to dispel the foreign investors’ misgivings and worries become our first considerations. The Chinese government has much publicity about the external economic policies. However, the investors demand a protection on a legal level which gives a prominent and realistic meaning to the generation of the Foreign Investment Law.
The Foreign Investment Law has 6 Chapters, including General Provisions, Investment Promotion, Investment Protection, Investment Administration, Legal Liability, Supplemental Provisions and General Provisions, and 42 Articles.
Along with all the aspects, the administrative system of pre-establishment national treatment plus negative list to foreign investment, the assurance of foreign investment’s fair competition in China, and intellectual property rights protection are the three main sections that gain the most attention.
The administrative system of pre-establishment national treatment plus negative list to foreign investment
According to Article 4 of the Foreign Investment Law,
“The state applies the administrative system of pre-establishment national treatment plus negative list to foreign investment. ‘Pre-establishment national treatment’ as mentioned in the preceding paragraph means the treatment accorded to foreign investors and their investments no less favorable to that accorded to domestic investors and their investments at the stage of investment access; and ‘negative list’ as mentioned in the preceding paragraph means a special administrative measure for access of foreign investment in specific fields as imposed by the state. The state accords national treatment to foreign investment outside of the negative list.”
And Article 28 stipulates that
“A foreign investor may not invest in a field which is prohibited by the foreign investment access negative list from investment. To invest in a field restricted by the foreign investment access negative list from investment, a foreign investor shall meet the investment conditions set out in the negative list. For fields outside of the foreign investment access negative list, investment administration shall be conducted under the principle of equal treatment to domestic and foreign investment.”
To complete the administrative system of pre-establishment national treatment plus negative list, the Foreign Investment Law also establishes a foreign investment information reporting system and a foreign investment security review system.
According to Article 34,
“The state establishes a foreign investment information reporting system. A foreign investor or foreign-funded enterprise shall submit investment information to the commerce department through the enterprise registration system and the enterprise credit information publicity system.”
And Article 35,
“The state establishes a foreign investment security review system to conduct a security review of foreign investment that impacts or may impact the national security.”
Thus, the system of case to case examination and approval under the Three Foreign Investment Laws shall be ceased to apply with the Foreign Investment Law coming into force.
The assurance of foreign investment’s fair competition in China
As to the assurance of foreign investment’s fair competition in China, besides the Article 3 as a general provision which stipulates that:
“The state implements high-level investment liberalization and facilitation policies, establishes and improves the foreign investment promotion mechanisms, and builds a stable, transparent, and foreseeable investment environment with a level playing field.”,
there are also other aspects worth mentioning. Such as Article 9
“The state’s various policies to support the development of enterprises shall equally apply to foreign-funded enterprises according to the law.”;
“The state guarantees that foreign-funded enterprises equally participate in standard development work according to the law, and reinforces information disclosure and public scrutiny in the development of standards. The compulsory standards developed by the state shall equally apply to foreign-funded enterprises.”;
“The state guarantees that foreign-funded enterprises participate in government procurement activities through fair competition according to the law. Products manufactured and services provided by foreign-funded enterprises within China shall be equally treated in government procurement according to the law.”;
and Article 24
“In developing regulatory documents involving foreign investment, the people's governments at all levels and their relevant departments shall comply with laws and regulations; and in the absence of any basis in laws and administrative regulations, such documents shall not derogate from the lawful rights and interests or increase the obligations of foreign-funded enterprises, shall not set any market access and withdrawal conditions, and shall not intervene the normal production and distribution activities of foreign-funded enterprises.”
From these articles, we can see the determination of the Chinese government to show its good faith in offering a fair competition environment in China for the foreign investors.
Intellectual property rights protection
To protect intellectual property rights, the Foreign Investment Law contains two aspects, namely Article 22
“The state protects the intellectual property rights of foreign investors and foreign-funded enterprises, and protects the lawful rights and interests of owners of intellectual property rights and relevant right holders; and for infringements of intellectual property rights, strictly holds the infringers legally liable according to the law. The state encourages technology cooperation on the basis of free will and business rules in the process of foreign investment. Technology cooperation conditions shall be determined under the principle of fairness by all investing parties through equal consultation. No administrative agency or its employee may force the transfer of any technology by administrative means.”
and Article 23
“Administrative agencies and their employees shall keep confidential, according to the law, the trade secrets of foreign investors and foreign-funded enterprises to which they have access in performing their duties, and neither divulge nor illegally provide others with such secrets.”
The Foreign Investment Law has not only stipulated the general protection of the intellectual property rights, but also intensified the legal responsibility system, especially the responsibilities of the administrative agencies, which is a brave measure to regulate from inside the government.
To conclude, the fact that the Foreign Investment Law offers more protections and conveniences to the business environment, capital market, intellectual property rights protections etc. for the foreign investors will increase enormously the foreign investor’s confidence to our market and will promote the healthy and ordered development of the Chinese market economy.
The enforcement of the Foreign Investment Law will attract more foreign investors to China, and domestic enterprises and foreign-invested enterprises will have mutual promotion and progress under fair competitions.