New Foreign Investment Law is milestone in China’s opening-up process
Kong Qingjiang

Editor's note: Kong Qingjiang is dean of the School of International Law at the China University of Political Science and Law. The article reflects the author's opinion, and not necessarily the views of CGTN.

China's Foreign Investment Law (FIL) was passed at the second session of the 13th National People's Congress (NPC) on Friday. This will transform the way foreign investors enter the Chinese market of 1.4 billion people. Chinese Premier Li Keqiang stressed that China will open up more areas to foreign investors when taking questions on the press conference after the closing of the annual NPC.

Before the new law, the so-called "three laws for foreign investment” provide the legal framework. They are the Sino-Foreign Joint Venture Law, the Sino-Foreign Contractual Joint Venture Law, and the Wholly Foreign Owned Enterprise Law. 

Lei Jun, the NPC deputy and CEO of Xiaomi Group, attended the Beijing delegation meeting of the second session of the 13th National People's Congress to review the Foreign Investment Law of the People's Republic of China (Draft). /VCG Photo.

Lei Jun, the NPC deputy and CEO of Xiaomi Group, attended the Beijing delegation meeting of the second session of the 13th National People's Congress to review the Foreign Investment Law of the People's Republic of China (Draft). /VCG Photo.

Under this framework, before foreign investors establish their companies in China, they are required to follow the state guideline and catalog specifically for foreign investment, and in the meantime, they will have to submit their investment proposals to the Chinese government for review and approval on a case-by-case basis.

The FIL has undergone fundamental changes in the foreign investment management system. Compared with the current "three laws for foreign investment," it has undergone a fundamental change in foreign investment.

Firstly, it ceases to be a law governing various forms of foreign investment enterprises, leaving the task to the Company Law and Partnership Enterprise Law.

Secondly, if the three laws for foreign investment are characterized by case-by-case approval mode, the Foreign Investment Law is to replace it with the pre-entry national treatment plus negative list for foreign investment. The areas that are prohibitive or restrictive to foreign investment are clearly listed on the negative list, and the list is made public. 

Beyond the list, foreign investors are treated like domestic investors not only at the registration period when their business entity is established in China but also after the establishment of the business entity in the country.

Representatives of the Jiangsu delegation of the Second Session of the 13th National People's Congress reviewed the draft Foreign Investment Law at the group meeting. March 10, 2019.‍ /VCG Photo.

Representatives of the Jiangsu delegation of the Second Session of the 13th National People's Congress reviewed the draft Foreign Investment Law at the group meeting. March 10, 2019.‍ /VCG Photo.

Thirdly, the Foreign Investment Law focuses on investment promotion and investment protection, while supplemented by foreign investment management.

Compared with the previous "three foreign laws," a very important change in the FIL is to strengthen investment promotion and protection and provide more solid legal protection for foreign investors and foreign-invested enterprises to protect their legitimate rights and interests. The law has set up special chapters to foster investment promotion and investment protection. 

It is aimed at foreign investors and foreign-invested enterprises, which are generally concerned about the expropriation, profit remittance, intellectual property protection, and non-forced technology transfer, local government compliance, and other issues. Under the new law, there is clear guidance for governments at all levels to promote and protect foreign investment.

In addition to stronger intellectual property protection, they are protected against the expropriation of their investment and banning forced technology transfer, just to name a few, and therefore foreign investors are also ensured of equal opportunity to government procurement between Chinese enterprises and foreign investment enterprises.

This is an extremely important development, which is conducive to creating a better business environment and better protecting the legitimate rights and interests of investors.

Of course, Rome is not built in one day. This proverb can be used to describe the rule of law in the field of foreign investment. As a basic law governing foreign investment, after the promulgation and implementation of the FIL, many relevant regulations, promulgated in accordance with the “three laws for foreign investment,” will be enacted, changed or canceled accordingly, and this process will take time. New supplementary regulations such as the regulations on national security review are also needed.

Nevertheless, with the promulgation and implementation of the law, the new foreign investment management system will be further improved, which will uplift to China to a higher level of investment liberalization and facilitation. It will be recorded in history as a big step forward in China's investment liberalization, and a milestone of the country's reform and opening-up process. 

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