China – New Foreign Investment Law Passed At Chinese National People’s Congress.

China passed a new Foreign Investment Law (“FIL”) at the National People’s Congress on 15 March 2019, and the new FIL will take effect from 1 January 2020. The new FIL are specific responses to various long-held concerns from foreign investors and foreign- invested enterprises for improving the legal environment for foreign investment in China. It grants foreign companies an equal standing with China’s local enterprises and establishes a “negative list” for those sectors that are not open automatically. This means that for foreign investment, China's investment environment is more open, stable and transparent.

 

Main highlights under the new FIL are:

 

• National treatment (Article 9): National policies to support the development of enterprises will also be

  applicable to foreign-invested enterprises, similar to domestic-invested ones;

• Prevention of compulsory technology transfer (Article 22): The terms of any technology cooperation associated with foreign investment shall be determined by all investment parties through negotiation. Administrative means should not be used by administrative agencies or their officers to compel the transfer of technology transfer; and

• Governmental commitment (Article 24): Local governments and their relevant departments shall strictly adhere to all policy commitments made according to law, and perform contracts concluded according to law.

 

From the administrative perspective, foreign investment will be subject to the following three investment administrative systems under the new FIL:

 

• (a)  Pre-establishment National Treatment and Negative List administrative system (Article 27);

• (b)  Foreign Investment Information Reporting system (Article 33); and

• (c)  Foreign Investment National Security Review system (Article 34).

 

It is worthy to note that the new FIL, comprising just 41 articles in total, is significantly shorter than the earlier draft for consultation in 2015, which has 170 articles, and has left a number of issues open. This indicates that the overall legislative goal for the FIL is now focused on principles and guidance.

 

As the current laws on foreign investment enterprises will be abolished simultaneously upon the coming into effect of the FIL, implementation regulations for the new FIL are expected to be issued soon so that a clear legal base could be referred to for any approval or filing requirements, procedures and time limit applicable to foreign investment under the new FIL.