NEW YORK — China’s newly approved foreign investment law bodes well for overseas investors in terms of equal treatment and stronger legal protection, observers of various communities in the United States have said.
China’s national legislature passed the foreign investment law on March 15, a landmark legislation that will provide stronger protection and a better business environment for overseas investors.
The law, based on a system of pre-establishment national treatment plus a negative list, aims to improve the transparency of foreign investment policies and ensure that foreign-invested enterprises participate in market competition on an equal basis.
The law “has sent a clear message that China welcomes foreign investment and protects the legitimate rights of foreign investors,” Li Ji, a professor of law at Rutgers University in the US state of New Jersey, told Xinhua.
“A main purpose of lawmaking is to add transparency and predictability to (China’s) investment environment, which will help strengthen investor confidence,” the professor added.
BOOSTING INVESTOR CONFIDENCE
China’s national treatment “will afford foreign investors treatment that is no less favorable than that afforded to Chinese investors during the establishment, acquisition, expansion and other stages of their investment,” Sourabh Gupta, a senior fellow at the Washington-based Institute for China-America Studies, told Xinhua.
He noted that the legislation explicitly prohibits forced technology transfer by administrative measures and essentially bars local governments from interfering in national foreign investment policies.
Therefore, the investment protection clauses in the law will be “gladly welcomed by foreign businesses,” he said.
Jorge Mariscal, emerging markets chief investment officer at Union Bank of Switzerland (UBS) Global Wealth Management, also said he believes that these measures will help foreign investors to strengthen their confidence to invest in China.
“We hope and remain positive that these measures will increase investors’ confidence in investing in China,” Mariscal told Xinhua.
Similarly, Gupta also believed that the law will help address major issues that foreign investors face in China, as it provides them with strong protection to ensure administrative and regulatory impartiality.
“Foreign investors will now be able to compete on the same terms as China’s domestic companies,” Gupta told Xinhua, adding that a number of key sectors have gone through significant liberalization for foreign direct investment (FDI), such as cars, finance and insurance.
By explicit prohibition, the law would help resolve investors’ grave concerns and prompt more foreign capital to flow into China, said Hao Yong, a partner of JunHe law firm LLP New York office.
“It shows the government’s respect to contracts, and will improve its credibility,” Hao told Xinhua. “Such measures will make a more level playing field for overseas firms and help increase their competitive edge in China.”
About 960,000 foreign-invested enterprises had been set up in China, with the accumulated FDI exceeding $2.1 trillion by the end of 2018, according to the United Nations Conference on Trade and Development.
A survey of 240 companies by the American Chamber of Commerce in South China also shows that the respondents plan to increase their reinvestment budgets from profits in China this year to an estimated total of $19.4 billion, up nearly 40 percent from 2018.
EFFECTIVE LAW ENFORCEMENT KEY
The law is scheduled to take effect on Jan 1, 2020, yet more auxiliary measures supporting the enforcement of the law would be needed to effectively upgrade China’s investment environment for foreigners, Hao said.
Viewing the legislation as “a definite step in the right direction,” Mariscal from UBS also stressed that enforcement of the law would be key.
“What would particularly affect the foreign investors is the effectiveness in the implementation of the legal framework,” the UBS investment officer said.
“The foreign investment law relates to longer term FDI. It will take some time, but we should see greater appetite to relocate businesses to China,” he said.
In this aspect, Gupta said that it would take some time for the law to reassure foreign businesses that “the playing field is being leveled in China to allow fair competition to take hold, irrespective of national origins.”
As always, when a piece of legislation is passed, the key is in the implementation, he noted, adding that the success of the enforcement will depend on how rigorously the regulations regarding implementation are written.
In terms of foreign investment protection, “strong measures to deal with political, regulatory and administrative noncompliance are envisaged. A robust working mechanism to promptly address foreign businesses’ complaints is also envisaged,” he said.
The scholar also pointed out that the law’s significance for China’s new round of opening-up and reform is “potentially profound,” as it embodies its potential to help transform the Chinese economy into “a more sophisticated, advanced economy-type, productivity-led growth model.”