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High hopes voiced for introduction of Foreign Investment Law

Updated: Mar 1,2019 9:20 PM

A new law, to be voted on during the two sessions, could be the most significant in terms of China’s opening-up since the country joined the World Trade Organization, according to a leading lawyer in the country.

The new law will reduce the number of sectors on the negative list in which foreign companies are barred from operating, protect the intellectual property of overseas investors and ban forced technology transfers.

Edward Lehman, managing director of Lehman, Lee & Xu in Beijing, said the Foreign Investment Law could create a new level playing field for foreign companies in China.

“I don’t believe there has been as big an adjustment in the law as this since China’s accession to the WTO in 2001,” he said.

“It puts foreigners on equal ground, but in allowing increased competition in what were considered protected areas, it can only stimulate economic activity.”

The draft law was announced at the end of December by the National People’s Congress, the top legislature, which then asked for comments from foreign companies and all interested parties by Feb 24.

Andy Mok, research fellow at the Center for China and Globalization, an independent think tank in Beijing, believes such legislation is vital if China is to advance to the next stage of its development.

“China is moving into its science and technology phase, and technological advancement relies on intangible assets such as patents and protecting intellectual property. It is important there are moves in this area,” he said.

Jiang Hao, a partner in Shanghai for management consultancy Roland Berger, also welcomed the proposed law.

“China will open up more investment areas and loosen many restrictions on existing industries, and this will present many opportunities for foreign companies who are interested in this huge market,” he said.

However, Jiang said it was not just the law but the implementation of it that mattered.

“We can expect issues regarding transparency and inconsistency of execution that will create challenges. We believe the government is determined to tackle these issues,” Jiang said.

The European Union Chamber of Commerce in China welcomed moves to streamline legislation into a single law.

But Mats Harborn, president of the chamber, said it would have preferred more time to consider the legislation.

“The law will have major ramifications for all foreign companies in China for the foreseeable future, so the drafting process must be given the due time and attention for such an important piece of legislation,” he said.

Lehman, who has been in China since the 1980s, said there is a tendency for foreign companies operating in the country to see the scales tipped against them.

“At the beginning of China’s reform and opening-up, foreign companies were lured with the offer of tax breaks, which were not offered to Chinese companies, and there was resentment about this,” he said.

The lawyer said that despite the new law, intellectual property protection will remain a complex issue.

“The new law will give companies who are in restricted sectors where they have to operate with a joint venture partner more protection against forced technology transfers,” he said.

“However, in reality, even foreign companies that operate as wholly-owned ventures might have to give away some of their IP when bidding for government contracts, for example. This is not unique to China but happens elsewhere as well.”

Chen Yingqun contributed to this story.