Client Alert | 4 January 2019

China plans new Foreign Investment Law

On 26 December 2018, the Standing Committee of the 13th National People’s Congress of the People’s Republic of China published a draft Foreign Investment Law (外商投资法[草案], the “Draft”). The Draft aims at reorganizing the basic framework for foreign investment in China. Once in force, the Foreign Investment Law would replace three existing Chinese laws on foreign investment, namely

  • the Sino-Foreign Equity Joint Venture Enterprise Law (中华人民共和国中外合资经营企业法),
  • the Wholly Foreign-Owned Enterprise Law (中华人民共和国外资企业法), and
  • the Sino-Foreign Cooperative Joint Venture Enterprise Law (中华人民共和国中外合作经营企业法).

The relatively short Draft sets out general guiding principles which, for most part, are in line with current policy principles. Thus, the Draft reaffirms the intention of the Chinese government to “further opening up” for foreign investment by continuously implementing high-standard investment liberalization and facilitation policies, building and improving foreign investment facilitation systems, and creating a stable, transparent and predictable environment for foreign investors.

 

Going further, the Draft postulates that China is committed to the equal treatment of foreign investors, specifically with respect to compulsory standards, government procurement and government sponsored business development policies. The Draft also explicitly confirms the Chinese government’s commitment to protecting the intellectual property rights of foreign investors. It bans or at least restricts local government interference with respect to technology transactions involving foreign investors.

 

Most remarkably, however, the Draft would abandon the structural distinction between foreign invested entities and so-called domestic entities. This alone would be an important step towards a more level playing field for all market players. The Standing Committee is now soliciting for public comment and opinions; the deadline is 24 February 2019. We will inform you about the further developments.




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