PRC Foreign Investment Law
Implementation Regulation of the PRC Foreign Investment Law, effective as from 1st January 2020 [read]
PRC Foreign Investment Law
Adopted at the 2nd session of the 13th National People's Congress on 15th March 2019, and effective as from 1st January 2020)
Table of Contents
Chapter I General Provisions
Chapter II Investment Promotion
Chapter III Investment Protection
Chapter IV Investment Management
Chapter V Legal Liability
第六章 附 则
Chapter VI Supplementary Provisions
Chapter I General Provisions
Article 1 In order to further expand opening up, actively promote foreign investment, protect the legitimate rights and interests of foreign investment, standardize foreign investment management, facilitate the formation of a comprehensive and new opening-up pattern, and promote the healthy development of the socialist market economy, this Law is enacted in accordance with the Constitution.
Article 2 This Law applies to foreign investment in the territory of the People’s Republic of China (hereinafter referred to as “within the territory of China”).
Foreign investment mentioned in this Law refers to the investment activities of foreign natural persons, enterprises or other organizations (hereinafter referred to as foreign investors) directly or indirectly within the territory of China, including the following:
(1) Foreign investors set up foreign-invested enterprises in China alone or jointly with other investors;
(2) Foreign investors obtain shares, equities, property shares or other similar rights and interests of enterprises within the territory of China;
(3) Foreign investors investing in new projects in China alone or jointly with other investors;
(4) Other investment prescribed by laws, administrative regulations or specified by the State Council.
Foreign-invested enterprises mentioned in this Law refer to enterprises that are wholly or partly invested by foreign investors and registered within the territory of China under the Chinese laws.
Article 3 The State adheres to the basic State policy of opening to the outside world and encouraging foreign investors to invest within the territory of China.
The State maintains a policy of high-level investment liberalization and facilitation, establishes and improves a mechanism for foreign investment promotion, and creates a stable, transparent, predictable and fair market environment.
Article 4 The State maintains a system of pre-entry national treatment plus a negative list management for foreign investment.
The pre-entry national treatment mentioned in the preceding paragraph refers to the treatment given to foreign investors and their investment at the stage of investment admission no less than that to domestic investors and their investments; the so-called negative list refers to the special management measures that are adopted for the admission of foreign investment in specific areas. The State gives national treatment to foreign investment outside the negative list.
The negative list is issued or approved by the State Council.
Where international treaties or agreements concluded or acceded to by the People’s Republic of China provide for more preferential treatments for the admission of foreign investment, the relevant provisions may be applied.
Article 5 The State protects the investment, income and other legitimate rights and interests of foreign investors in China in accordance with the law.
Article 6 Foreign investors and foreign-invested enterprises that conduct investment activities within China shall abide by Chinese laws and regulations and shall not endanger China’s national security and harm the public interest.
Article 7 The competent departments ofthe State Council responsible for commerce and investment shall, in accordance with the division of responsibilities, carry out the promotion, protection and management of foreign investment; other relevant departments of the State Council shall, within their respective responsibilities, be responsible for the affairs related to the promotion, protection and management of foreign investment.
The relevant departments of the local people’s governments at or above the county level shall, in accordance with laws and regulations and the division of responsibilities determined by the people’s government at the same level, carry out the work relating to the promotion, protection and management of foreign investment.
Article 8 Employees of foreign-invested enterprises may, in accordance with law, establish trade union organizations, carry out trade union activities, and safeguard their legitimate rights and interests. Foreign-invested enterprises shall provide necessary conditions for the trade unions thereof.
Chapter II Investment Promotion
Article 9 Foreign-invested enterprises may, in accordance with the law, equally enjoy the State policies concerning the support of enterprise development.
Article 10 Before the formulation of laws, regulations and rules related to foreign investment, appropriate measures shall be taken to solicit opinions and suggestions from foreign-invested enterprises.
Normative and adjudicative documents related to foreign investment shall, according to law, be made public in a timely manner.
Article 11 The State establishes and improves a system serving foreign investment to provide consultation and services to foreign investors and foreign-invested enterprises on laws and regulations, policy measures, and investment project information.
Article 12 The State establishes multilateral and bilateral investment promotion cooperation mechanisms with other countries and regions and international organizations, and strengthens international exchanges and cooperation in the field of investment.
Article 13 The State may establish special economic zones where needed, or adopt experimental policies and measures for foreign investment in selected regions with a view to promoting foreign investment and expanding opening-up.
Article 14 The State may, in accordance with the needs of national economic and social development, encourage and guide foreign investors to invest in specific industries, sectors and regions. Foreign investors and foreign-invested enterprises may enjoy preferential treatment in accordance with laws, administrative regulations or the provisions of the State Council.
Article 15 The State ensures that foreign-invested enterprises have equal access to the standard-setting work according to law, and strengthens information disclosure and social supervision regarding standard-setting.
The mandatory standards set forth by the State are equally applicable to foreign-invested enterprises.
Article 16 The State ensures that foreign-invested enterprises have equal access to government procurement through fair competition in accordance with the law. Products and services provided by foreign-invested enterprises within the territory of China are equally treated in government procurement in accordance with law.
Article 17 Foreign-invested enterprises may, in accordance with the law, finance through public offering of stocks, corporate bonds and other securities.
Article 18 Local people’s governments at or above the county level may, in accordance with the provisions of laws, administrative regulations and local regulations, formulate policies and measures for foreign investment promotion and facilitation within their statutory competence.
Article 19 The people’s governments at all levels and their relevant departments shall, in accordance with the principles of facilitation, efficiency and transparency, simplify procedures, improve efficiency, optimize government services, and further improve the level of foreign investment services.
The relevant competent authorities shall prepare and publish foreign investment guidelines to provide services and facilities to foreign investors and foreign-invested enterprises.
Chapter III Investment Protection
Article 20 The State does not expropriate foreign investment.
Under extraordinary circumstances, the State may expropriate and requisition the investment of foreign investors in accordance with the law and for the needs of the public interest. The expropriation and requisition shall be conducted in accordance with legal procedures and timely and reasonable compensation shall be given.
Article 21 Foreign investors’ capital contribution, profits, capital gains, assets disposal income, intellectual property license fees, legally obtained damages or compensation, liquidation proceeds, etc., may be freely remitted to overseas in RMB or foreign exchange according to law.
Article 22 The State protects the intellectual property rights of foreign investors and foreign-invested enterprises, protects the legitimate rights and interests of intellectual property rights holders and related rights holders, and holds intellectual property rights infringers legally accountable in strict accordance with the law.
The State encourages technical cooperation based on the voluntariness principle and commercial rules in the process of foreign investment. The conditions for technical cooperation are determined by equal negotiation between the parties to the investment inaccordance with the principle of fairness. Administrative agencies and their staff are prohibited to use administrative means to force any technology transfer.
Article 23 The administrative organs and their staff shall keep confidential the business secrets known to them, of foreign investors and foreign-invested enterprises during the performance of their duties, and shall not disclose or illegally provide them to others.
Article 24 The people’s governments at all levels and their relevant departments shall be in compliance with the provisions of laws and regulations in formulating normative documents concerning foreign investment; unless authorized by laws and administrative regulations, they shall not derogate from the legitimate rights and interests of foreign-invested enterprises or increase their obligations, set forth conditions for market access and exit, and interfere with normal production and operation of foreign-invested enterprises.
Article 25 Local people’s governments at all levels and their relevant departments shall honor their commitments on policies made available to foreign investors and foreign-invested enterprises under the law and various types of contracts concluded in accordance with the law.
If policy commitments or contractual agreements need to be changed for the State interests and public interests, they shall be conducted in accordance with the statutory authority and procedures, and foreign investors and foreign-invested enterprises shall be compensated for the losses they suffered accordingly.
Article 26 The State establishes a complaint and settlement mechanism for foreign-invested enterprises, with a view to promptly handling problems raised by foreign-invested enterprises or their investors, and coordinating and improving relevant policies and measures.
If a foreign-invested enterprise or its investors believe that the administrative actions of the administrative organ and its staff infringe upon their legitimate rights and interests, they may apply for a coordinated solution through the complaint and settlement mechanism for the foreign-invested enterprise.
If a foreign-invested enterprise or its investors believe that the administrative actions of the administrative organ and its staff infringe upon their legitimate rights and interests, in addition to applying for a coordinated solution through the complaint and settlement mechanism for the foreign-invested enterprise in accordance with the provisions of the preceding paragraph, they may also apply for administrative reconsideration and file an administrative lawsuit according to law.
Article 27 Foreign-invested enterprises may establish and voluntarily participate in chambers of commerce and associations according to law. The chamber of commerce and association shall carry out relevant activities in accordance with the laws, regulations and its articles of association to safeguard the legitimate rights and interests of its members.
Chapter IV Investment Management
Article 28 Foreign investors shall not invest in the areas where investment is prohibited under the negative list for the admission of foreign investment .
Foreign investors shall meet the conditions set forth in the negative list for the admission of foreign investment to invest in the areas where investment is restricted under the negative list.
Management of foreign investment in the areas beyond the negative list shall be implemented in accordance with the principle of equality between domestic and foreign investment.
Article 29 If foreign investment is required to go through the approval or investment project record procedure, it shall be implemented in accordance with relevant provisions.
Article 30 If a foreign investor invests in an industry or sector where legal permission is required for investment, it shall go through relevant licensing procedures in accordance with the law.
The relevant competent department shall, in accordance with the conditions and procedures equally applied to domestic investment, review the foreign investors’ application for permission, except as otherwise provided by laws and administrative regulations.
Article 31 Forms of organization, organization structures and activities of foreign-invested enterprises shall be governed by the provisions of the Company Law and the Law of the Partnership Enterprise of the People’s Republic of China.
Article 32 Foreign-invested enterprises that engage in production and business activities shall abide by the provisions of laws and administrative regulations concerning labor protection and social insurance, and handle matters such as taxation, accounting, foreign exchange, etc. in accordance with laws, administrative regulations and relevant provisions, and accept relevant supervision and inspection carried out by the relevant departments in accordance with the law.
Article 33 If a foreign investor acquires a Chinese domestic enterprise or participates in the concentration of business operators in other ways, it shall go through the examination on the concentration of business operators in accordance with of the Anti-Monopoly Law of the People’s Republic of China.
Article 34 The State establishes a system for foreign investment information reporting. Foreign investors or foreign-invested enterprises shall submit investment information to the competent commerce departments through the enterprise registration system and the enterprise credit information publicity system.
The content and scope of the foreign investment information report shall be determined in accordance with the principle of necessity; the investment information that can be obtained through the inter-department information sharing system shall not be required to be submitted again.
Article 35 The State establishes a system of security review for foreign investment to review the foreign investment that affects or may affect national security.
The security review decision made in accordance with the law is final.
Chapter V Legal Liability
Article 36 Where a foreign investor invests in the areas, which are specified by the negative list for the admission of foreign-investment as prohibited areas, the relevant competent department shall order it to stop the investment activities, and dispose of the shares, assets or take other necessary measures within a specified time limit, and restitute to the status before the investment was made; If there is illegal income, it shall be confiscated.
Where the investment activities of a foreign investor violates the special management measures for the admission of foreign-investment regarding restricted areas in the negative list, the relevant competent department shall order the correction within a specified time limit and take necessary measures to meet the conditions set forth by the special management measures for the admission of foreign-investment; if no corrections have been made within the time limit, the provisions of the preceding paragraph shall be applied.
Where the investment activities of a foreign investor violates the special management measures for the admission of foreign-investment in the negative list, in addition to the provisions of the preceding two paragraphs, it shall also bear corresponding legal liabilities under the law.
Article 37 If a foreign investor or a foreign-invested enterprise violates the provisions of this Law and fails to submit investment information in accordance with the requirements of the foreign investment information reporting system, the competent commerce department shall order it to make corrections within a specified time limit; if no corrections have been made within the time limit, a fine of more than 100,000 yuan and less than 500,000 yuan shall be imposed.
Article 38 Any violation of laws or regulations by foreign investors or foreign-invested enterprises shall be investigated and dealt with by relevant departments in accordance with the law and recorded into the credit information publicity system in accordance with relevant provisions.
Article 39 If a staff of an administrative organ abuses his power, neglects his duties or engages in malpractices in the promotion, protection and management of foreign investment, or leaks or illegally provides others with trade secrets that he or she knows in the course of performing his duties, he shall be punished according to law; if he commits a crime, he shall be held criminally responsible.
第六章 附 则
Chapter VI Supplementary Provisions
Article 40 If any country or region adopts discriminatory prohibitions, restrictions or other similar measures on the People’s Republic of China, the People’s Republic of China may take corresponding measures against the country or the region according to actual conditions.
Article 41 If the State provides other provisions for foreign investment in the banking, securities, insurance and other financial industries, or in the securities market, foreign exchange market, and other financial markets within the territory of China, such provisions shall be applicable.
Article 42 This Law shall come into force on January 1, 2020. The Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures, the Law of the People’s Republic of China on Wholly Foreign-owned Enterprises, and the Law of the People’s Republic on Sino-Foreign Contractual Joint Ventures shall be repealed simultaneously.
Foreign-invested enterprises that have been established before the implementation of this Law in accordance with the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures, the Law of the People’s Republic of China on Wholly Foreign-owned Enterprises, and the Law of the People’s Republic of China on Sino-Foreign Contractual Joint Ventures may continue retaining their original forms of business organizations within five years after the implementation of this Law. The detailed implementation measures of this Law shall be prescribed by the State Council.
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 an 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 an impact across the board. It is considered to be a complicated issue and of high concern for 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