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Foreign investment law will boost protection

Zhong Nan, Jing Shuiyu and Ren Xiaojin
Updated: Mar 11,2019 7:19 AM     China Daily

The National People’s Congress, the country’s top legislative body, will vote on the adoption of the draft foreign investment law on March 15.

However, foreign business leaders, along with Chinese political advisers and legislators are already convinced that the new legislation will fundamentally improve the country’s foreign investment management system and provide more effective legal protection for a comprehensive opening-up policy.

Once adopted, the unified law will replace three existing laws on Chinese-foreign equity joint ventures, wholly foreign-owned enterprises and Chinese-foreign contractual joint ventures. The laws were mostly introduced between 1979 and 1988 and then revised.

The move to unify the three laws-under which foreign companies register in China-into a single piece of legislation while also highlighting many of the challenges faced by foreign businesses in the domestic market is being viewed positively in light of the reality facing companies from overseas, according to Gu Chunyuan, president for Asia, the Middle East and Africa at ABB Group, the Swiss industrial conglomerate.

Meanwhile, Rachel Duan, senior vice-president of the industrial giant General Electric of the United States, said, “We are pleased that the draft law clearly stipulates that foreign enterprises will receive ‘pre-establishment national treatment’, in addition to a ‘negative list system for market access’”.

Duan said the draft pledges that foreign-invested companies will enjoy the same rights as domestic outfits to participate in drafting standards and bidding for government procurement projects.

Xiao Shengfang, president of the Guangdong Lawyers Association and an NPC deputy, said the negative list-which restricts foreign investment in certain industries-will clarify the areas in which FDI is prohibited and restricted, and provide foreign investors with solid guarantees of their legitimate rights and interests.

According to the details of the text, the draft law offers a clear response to common concerns among foreign investors and clarifies protection provisions for issues such as expropriation and compensation, protection of intellectual property rights and the forced transfer of technology.

Foreign investors’ capital contribution and profits and capital gains made in China will be freely transferable overseas, either in yuan or another currency, according to the draft law.

On Jan 30, the NPC Standing Committee decided to submit the draft law to the ongoing session of the NPC, which opened in Beijing on March 5.

Greater openness

“The increasingly open, fair, predictable and favorable business environment, protected by legislation, will definitely help us develop with lower costs and greater efficiency,” said Stephane Rinderknech, CEO for China of L’Oreal Group of France.

He said the enhanced protection offered by the new law will help his company reinforce its focus on research and innovation, manufacturing quality, consumer services, development of local talent, sustainability, and the acceleration of product launches to make a bigger contribution to Chinese consumers and the local market.

Wei Jianguo, vice-president of the China Center for International Economic Exchanges, said that compared with the three existing laws that focus on the supervision of foreign companies, the draft law emphasizes protection of overseas investors.

“The law is expected to serve as an innovative improvement of China’s foreign investment legal system,” he said. “The move shows that China is promoting opening-up based on rules and related institutions, in addition to opening-up based on the flow of goods and production factors.”

Ministry of Commerce data show that in the past 40 years, FDI in China has surpassed $2 trillion, contributed to the creation of 10 percent of urban jobs, and accounted for 20 percent of fiscal revenue and almost half the nation’s foreign trade.

Andrew Weir, vice-chairman of KPMG China, said greater clarity of the laws relating to foreign investment is always helpful. The adoption of the draft law will bring more certainty and also help with the structuring of investments that form part of initial public offerings and capital market transactions.

“Opening up the economy is good for business,” he said, adding that a sound business environment will guarantee improved investment, creativity and productivity.

Shen Kaiju, a professor of commercial law and a member of the 13th National Committee of the Chinese People’s Political Consultative Conference, said that when the three existing laws were formulated, global investment came to China mainly because of the low cost of manufacturing materials and human resources.

“Now, boosted by consumption upgrades, rich talent resources and modern industrial and infrastructure facilities, China’s huge market potential is much more alluring for foreign investment,” Shen said. “Therefore, multinationals are keen to see the government update the existing laws and provide greater market access in the country.”

Zhang Yuyan, director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences and a CPPCC National Committee member, said, “A better business environment requires better implementation of policies and law enforcement.”

Yan Bin, co-chair of the Belt and Road General Chamber of Commerce (Hong Kong) and a member of the CPPCC National Committee, said, “We hope to see streamlined procedures and minimized human intervention, promoting an open, transparent environment for both Chinese and foreign businesses, as well as seeing more concrete guidelines in addition to the official online releases.”

Jens Hildebrandt, executive director of the German Chamber of Commerce in China (North China), said German companies in the country welcome and appreciate the government’s efforts to reform the rules governing foreign investment.

He said the next step the chamber would like to see is the timely elaboration of detailed regulations for implementation to strengthen foreign investors’ trust, create confidence and provide greater legal certainty.

“We hope for a wise and appropriate approach to this matter, and would be pleased to contribute to the formulation of the regulations for implementation,” he added.

Favorable environment

To build a favorable business environment, the Ministry of Commerce and other government branches have pledged to continue to improve how local governments handle complaints lodged by foreign businesses. They will also add more areas to pilot free trade zones in Shanghai and Guangdong province, and devise policies to build a free trade port in Hainan province to bolster growth this year.

The nation’s investment environment is expected to become more stable, open and transparent, said Wang Shouwen, vice-minister of commerce, at a news conference during the two sessions on March 9.

Wang predicted that FDI will remain stable this year, while quality will be improved and structures will be optimized.

That opinion was shared by Robert Lawrence Kuhn, chairman of the Kuhn Foundation, who believes the draft foreign investment law backs up the government’s words with actions. China has become a major champion of globalization and the mutual benefits of free trade, and by further opening its markets it is aligning domestic policy with its international strategy, he said.

According to the Ministry of Commerce, China attracted 84.18 billion yuan ($12.41 billion) in FDI in January, a rise of 4.8 percent from the same month a year before, while the nation’s high-tech service industry saw a significant rise in the volume of foreign capital.

Also in January, Tesla, the US automotive and energy company, broke ground for its Shanghai plant. In doing so, it became the first foreign company to benefit from a new policy that allows non-Chinese carmakers to establish wholly owned subsidiaries in China. At $7.3 billion, it is the biggest foreign investment in Shanghai’s manufacturing sector.

Zhang Yesui, spokesman for the Second Plenary Session of the 13th National People’s Congress, said investments from Hong Kong, Macao and Taiwan are distinctive because they are not foreign investment, but are not entirely equivalent to domestic capital either. In practice, this means they are managed in the same way as foreign investments.

FDI in China is generally defined as investment activity conducted directly or indirectly by foreign nationals, companies and other organizations. In addition, it is classified as the establishment of foreign-invested companies, and acquisitions of shares, equity, property or other business interests in China by foreign investors through mergers and acquisitions.

When the new foreign investment law takes effect, the relevant legal arrangements will remain unchanged, and the laws regarding investment from Hong Kong, Macao and Taiwan will be continuously revised and improved in accordance with local needs to further provide a more open and easy business environment for investors from Hong Kong, Macao and Taiwan, Zhang said.

China has maintained stable FDI growth despite a gloomy global backdrop. Last year, FDI amounted to $135 billion, with the main sources being the European Union, the US, the Association of Southeast Asian Nations and Japan, according to the Ministry of Commerce.

Eager to grow their market share, a number of multinationals-such as German automaker BMW and US oil and gas producer Exxon Mobil-announced big-ticket investment plans in China last year.

In January, BASF signed a framework agreement with the provincial government of Guangdong to further clarify planning details for the German chemicals giant’s $10 billion Verbund complex in Zhanjiang, a city in the southwest of the province.