One week before the 2019 Spring Festival, Chinese People’s Congress Standing Committee has completed the second review of the draft Foreign Investment Law. We expect this new law to become effective in the near future in 2019, most likely during the upcoming national People’s Congress in March.
Since China’s re-opening to the world in 1978, foreign investment in China has been governed primarily by the so-called “three FIE laws” i.e., “Sino-foreign Equity Joint Venture Enterprise Law (1979), Wholly-foreign Owned Enterprise Law (1986) and Sino-foreign Cooperative Joint Venture Law (1988). Once the new Foreign Investment Law becomes effective, the previous “three FIE laws” will be replaced and the regulatory system of foreign investment in China will be simplified and unified.
The overall spirit of the new Foreign Investment Law is to provide equal treatment and intellectual property protection for overseas firms. First of all, except for limited situations, foreign investors (including foreign individuals, companies and organizations) may set up wholly owned subsidiary or joint venture by way of investment or acquisition in the same way as Chinese domestic companies. Under the new regulatory environment, no government prior approval will be required and a foreign investor can simply go through the company registration process at the local company registry. Foreign investors may be subject to prior government approval prior to the company registry in certain limited situations if the proposed business is on the so-called “negative list” published by the government. We find cleantech companies rarely appear on the “negative list”. Second, the draft law explicitly bans mandatory technology transfers and encourages tech cooperation based on voluntary principles and commercial rules. In addition, foreign companies will enjoy the same treatment as their Chinese counterparts in terms of IPO opportunities in the Chinese stock market and selling product or service to various levels of the Chinese government. Finally, the draft law confirms that dividends, proceeds and royalty entitled by foreign companies should be free to wire out of China in foreign currency.
The draft law is not a very long or detailed statute, and therefore we expect the Chinese legislature and administrative bodies, mainly Ministry of Commerce, will issue interpretation rules and implementation measures in the future.
Refer to the Draft Foreign Investment Law (in Mandarin CHN)
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