China readies a new and improved foreign investment law
Note: The following is an edited translation of an article from the Chinese-language "Commentaries on International Affairs."
The Standing Committee of the National People's Congress, China's legislature, began its second review of the draft foreign investment law on Tuesday. The amended law is expected to become the basic legislative tool governing foreign investment in China, and will replace the "China-Foreign Joint Venture Enterprise Law", "Foreign Enterprise Law" and "China-Foreign Cooperative Enterprise Law".
At the end of last year, when planning for the economic work for 2019, some of the government's priorities for the year ahead were to relax market access, treat foreign-invested enterprises on an equal basis with domestic ones, and mitigate restrictions over industry sectors closed to foreign investment. The draft legislation responded directly to the wants and concerns of foreign-invested enterprises. For example, it stipulates that policies to support development are equally applicable to domestic and foreign-invested enterprises, and that companies can compete on a level playing field when it comes to government procurement.
When it comes to intellectual property protections, the draft law encourages technological cooperation between foreign and domestic firms based on voluntary participation, and emphasizes that partnering firms need to abide by the principle of fairness and equal consultation, and that administrative departments mustn't force technology transfers. And it says that investment by foreign businesses in China, their profits, their intellectual property license fees and compensation can be remitted freely into or out of China in either RMB or a foreign currency.
The draft foreign investment law also reflects international norms regarding the principle of reciprocity. For example, if a country adopts discriminatory rules that limit investment by enterprises from China, the new law clarifies the legal provisions that China would use to take corresponding measures in response. With these provisions clear, China is improving transparency while also making it clear that it won't submit to bullying from other countries.
In recent times, unilateralism and protectionism, and the uncertainty they create, has had a deleterious effect on global foreign direct investment. Despite this, China's use of foreign capital exceeded 880 billion yuan last year, a record high. It took just six months for the American auto maker Tesla to get from signing a deal to build a five billion U.S. dollar manufacturing plant in Shanghai to the point where construction started. And BMW has extended its agreement with its domestic partner to the year 2040, and increased its investment by three billion euros. China's plan to introduce a new foreign investment law will help to strengthen the confidence of foreign investors, which will be conducive to even greater investment. And it's one of the reasons why China is expected to continue to be one of the world's most attractive destinations for foreign investment.