Spokesman Sun Ji-wen of the Ministry of Commerce commented on the solicitation of public views on the “PRC Foreign Investment Law (Draft for Comments)”
On the 19th day of January 2015, the Ministry of Commerce published the “Foreign Investments Law of the People’s Republic of China (the Draft for Comments)”, with a view to soliciting views from the public. The spokesman for the MOC Mr. Sun Ji-wen delivered a talk on this.
As per Mr. Sun, the Law for Sino-foreign Equity Joint Venture Enterprises, the Law for Wholly Foreign Owned Enterprises, and the Law for Sino-foreign Cooperative Joint Venture Enterprises (collectively referred to as “the three Foreign Investment Laws” hereafter), which were enacted for the reform in the old days, have provided a foundation for the use of foreign direct investment in our country, and made enormous contribution to the great historical progression for steering the opening up of our country. In the wake of the development of the situation within and outside China, the Three Foreign Investment Laws could not meet the requirement for an across-the-board and in-depth reform. First, the approval mode that has been laid down in the Three Foreign Investment Laws can no longer meet the requirement for the construction of a new and open economic system, and are not conducive to providing the market dynamics and changing the government’s functions. Second, the rules specified for organizational structure and business operations in the Three Foreign Investment Laws overlap and in some instances conflict with the provisions of the Company Law. Third, certain important vetting system, such as merger and acquisition involving foreign enterprises and national security, is required to be included in the fundamental laws of foreign investment, and further improved.
It has been raised in the third plenary session of the 18th Central Committee of the Communist Party of China (the CPC) to build up a type of new and open economic system, unify the law and regulations for the domestically invested and foreign invested enterprises, keep the policy for foreign investment consistent, transparent and predictable, reform the approval system for foreign investment, and explore the administration models regarding the national treatment for foreign investment plus negative lists. It has also been required in the fourth plenary session of the 18th Central Committee of the CPC to adapt to the deepening open-door policy, enhance the legal system for foreign investment, and promote the construction of the new and open economic system. All of these provide us a clear guide to revise the law for the three types of foreign investments. To stay in line with the theme for the third and fourth sessions of the 18th Central Committee of the CPC, and act in accordance with the law making plan of the twelfth session of the Standing Committee of the National People’s Congress, and the 2014 working plan for making regulations of the State Council, the Ministry of Commerce kick-starts the revision work of the Law for Sino-foreign Equity Joint Venture Enterprises, the Law for Wholly Foreign Owned Enterprises and the Law for Sino-foreign Cooperative Joint Venture Enterprises, which lays the foundation for the Law for Foreign Investment of the People’s Republic of China (the Draft).
The spokesman for the MOC considered that the reform direction for the Three Foreign Investment Laws is to merge them into one, making a unified “Foreign Investment Law”, which is intended to be a law for furthering and deepening the system reform, widening the scope open-door policy, promoting foreign direct investment, and regulating the administration of foreign investment.
--- Furthering and deepening systems reform: The Draft has revised the current administration system of foreign investment, adopted the administration mode for national treatment and negative lists prior to the admission of foreign investment, abolished the case-by-case approval mode as laid down by the Three Foreign Investment Laws, repealed the administrative approval on the agreement and articles of association for the foreign investment enterprises, rebuilt an administrative system that provides foreign investment with a limited license and full reporting. Where foreign investment enters into industries or sectors on the negative lists, approval is required. Where foreign investors invest in China, they are required to submit reports irrespective of whether or not the investment projects fall within the negative lists. Most of the foreign investment need not obtain administrative approval under the negative list administration regime.
--- Open wider to the Outside: Under the administration mode for national treatment plus the negative list prior to admission, the administration shall provide lists specifying the sectors that prohibit or restrict foreign investment. The sectors that are not on the negative lists will be fully open to foreign investment, in respect of which the foreign investors and their investment shall receive treatment on no less favorable terms than that for Chinese investors. Next, the Chinese government shall, to the strictest extent, fulfill the requirement for building up an open and new economic system, implementing high level opening up for foreign investment and further relaxing the restriction for foreign investment.
--- Promoting foreign investment: Strengthening the government’s function in promoting investment is a new trend for making laws and formulating policies of foreign investment by the governments all over the world. The Draft sets out the policies and measures for the promotion of international investment, raises the professional standards for the promotion of international investment, strengthens the protection of interests of foreign investors and foreign investment, and the mechanism for handling complaints and mediation relating to foreign investment in China.
--- Standardizing foreign investment: On the one hand, the Draft relaxes the control over entry into China by foreign investment, enhances the dominance of the market in the allocation of resources. On the other hand, the Draft goes further to improve the administrative system for entry by foreign investment, the vetting system for national security, the system for the promotion and protection of foreign investment, includes the supervision and inspection over the investing and business operations of the foreign investors and foreign investment enterprises, and strengthens the supervision during and after the events.
The Draft no longer targets the organizational structure and business operation for the foreign investment enterprises as the subject for administrative regulation. The organizational structure and business operations shall all be placed within the confines of the Company Law in accordance with the equality principle for domestic and foreign funded investment. The Draft no longer makes a distinction between the types of enterprises in the application of administrative rules. The Foreign investment Law in principle shall apply to all foreign investors, irrespective of the types of enterprises the foreign investors set up and the ways they invest in China.
Mr. Sun pointed out that it was proposed in the fourth plenary session of the 18th Central Committee of the CPC to make a greater effort to enact laws in a scientific and democratic manner. The amendment to the Three Foreign Investment Laws and turning them into the “Foreign Investment Law” has impact across the board. It is considered to be a complicated issue and of high concern for the society members. The Ministry of Commerce welcomes the concern from every sector in the society and the opinion the members of the society raise. He said that the administration will collect feedback from the public in order to further enhance the design for the relevant legal system, make a fundamental law for foreign investment that aligns with the economic development and situation of our country and the international practices, and forges a legal environment that is more stable, transparent and predictable for foreign investment.
A Courtesy Translation by
China Tax & Investment Consultants Ltd