Source: Global Times Published: 2019-3-8
A draft foreign investment law has been submitted to the second annual session of China's top legislative body for deliberations on Friday, marking a major step toward the final passage of the country's first unified foreign investment law that would provide the legal basis for shaping China's management of foreign investment for years to come.
The unified law is seen as a major step toward replacing three existing laws on foreign investment. If adopted by the National People's Congress (NPC), the new law will guarantee greater access and better protection for foreign investors, as China continues to open its vast domestic market to foreign investors based on its own development needs, analysts said.
Wang Chen, vice chairman of the Standing Committee of the 13th NPC, briefed more than 3,000 NPC deputies, who will vote on the law, calling it a major move to improve the legal environment for foreign investors, and to attract more foreign investments.
NPC deputies will start to deliberate on the draft law in the coming days and a final vote is scheduled for March 15, when the annual session of the NPC is also slated to conclude.
The draft law touches on a wide range of issues regarding foreign investment in China, including a legal definition of foreign investment, protection of foreign investors and the management of foreign investment.
Perhaps most significantly the draft law offers what's known as pre-establishment national treatment to foreign companies, ensuring foreign investors receive equal treatment in areas outside the negative list, which contains sensitive sectors that are off limit to foreign investors.
"Providing such treatment in a basic law is probably the most significant move for foreign investment since the reform and opening-up policies," Huo Jianguo, vice chairman of the China Society for World Trade Organization Studies, told the Global Times on Friday. "Once national treatment is offered, all the benefits will follow."
Under the new law, foreign companies will qualify to take advantage of the same opportunities offered to their Chinese counterparts, from receiving policy support to participating in government procurement bids.
The draft law also underlines protection of intellectual property rights of foreign companies and prohibits government departments and officials from using administrative means to force technology transfers.
The law also requires local governments to fulfill their contracted commitments to foreign companies and establish a mechanism to resolve complaints from foreign companies. It also clearly states that China will not expropriate foreign investments, unless needed in the public interest of the country under "special circumstances."
While the law's new measures address concerns raised by foreign businesses and officials, including those made by the US during ongoing trade negotiations, the real impetus behind the years-long legislative effort was the need to change existing laws to accommodate China's further opening-up and domestic needs.
Though the draft law has garnered widespread attention since the end of last year, with some suggesting that China was rushing to pass the law aimed at resolving the trade war with the US, the process actually began as early as in 2013, and the need for a new foreign investment law has been brought up in previous legislative sessions, according to Huo.
"It would be one-sided to view this as just a response to foreign pressure or US trade negotiations," said Wang Yiwei, a professor at the School of International Relations from Renmin University of China. "These are necessary moves made prudently to support China's higher-standard opening-up and higher-quality growth."
Wang Yiwei noted that foreign companies have been playing a major role in China's economic development over the past several decades, and further upgrading of the economy will require the participation of more foreign firms. "This is what the law is about," he said.
Since the implementation of the reform and opening-up four decades ago, China has significantly opened its market and attracted considerable foreign investment.
As of November 2018, there were 950,000 foreign-funded companies registered in China that have brought more than $2 trillion into the country, according to the Xinhua News Agency.
But after years of rapid expansion, the Chinese economy is undergoing deep transformation toward higher-quality growth and attracting more foreign investment through the new law is necessary, analysts said.
The new law will replace three existing laws on Chinese-foreign equity joint ventures, non-equity joint ventures and wholly foreign-owned enterprises.
"Those laws were from a period of exploration by China during the reform and opening-up. They are not perfect but they helped China to get where it is today," Huo said, noting that with three different laws and other regulations, "it is understandable that there was some confusion."
That is also why a unified law is necessary, he said. "What it does is providing regulators with a clear legal basis for the management of foreign investment and foreign companies with trans-parency and predictability."
In a statement to the Global Times on Wednesday, the American Chamber of Commerce in China (AmCham) said it "appreciates" China's commitment to predictable, transparent and fair legal and regulatory system. It also outlines several concerns about the law, including what it calls the broad scope of national security reviews.
But analysts said setting up national security reviews is a commonly used practice around the world and is necessary for any country. "So there is no need for concern in that regard, what we should worry about is countries, particularly the US, abusing their national security review mechanisms," Wang Yiwei said.
Wang Yiwei is a senior fellow of Chongyang Institute for Financial Studies, Renmin University of China.