March 19, 2019

New law 'catalyst' for tenfold foreign investment increase

17 March 2019, 03:37 | Devin Moran

China passed a new foreign investment law set to create a level playing field for foreign firms

China passed a new foreign investment law set to create a level playing field for foreign firms

The legislation aims to address long-running grievances from foreign firms including stronger protections for intellectual property, but the U.S. and European chambers of commerce voiced concerns that they were not given enough time to give their input.

He added, "The addition of language imposing criminal penalties for sharing sensitive foreign company information adopts a much tougher deterrent against counterfeiting and theft and will offer new avenues for the enforcement of protection".

The new law will take effect on 1 January 2020.

It will ban forced technology transfer and illegal government "interference" in foreign business practices, according to the latest draft.

In a press conference Friday, Li said the National People's Congress (NPC) - China's top legislation body - has passed the Foreign Investment Law during the second session of the 13th NPC. "We will closely monitor the FIL's implementation to ensure that it is fully respected at all levels of government and in all corners of this country", said Mats Harborn, president of the EU Chamber of Commerce in China.

Despite the promised changes, businesses will still need to "jump... several hurdles" to gain market access, said Kyle Freeman, a lawyer at Dezan Shira & Associates.

China would soon announce shorter negative lists and continue to trim them in future, "increasing the scope of what is not prohibited", Li said.

Ahead of Friday's vote, foreign business groups welcomed the proposed law but said it might have been rushed through the approval too quickly.

"It's a very important piece of legislation that people have been waiting for for a long time because it will change the working environment for foreign investors in China - and it will most likely have an impact on the way in which Chinese investors can work overseas", Hendrischke said.

"Not allowing the economy to slip out of a reasonable range, that is to say we will not allow waves of layoffs", said Li, adding the government will provide support to firms creating the most jobs.

It was unclear whether the measure would mollify U.S. President Donald Trump, who launched the tariff war by raising U.S. duties on Chinese imports in response to complaints Beijing steals or pressures companies to hand over technology. 2018's shortened Negative List sent a strong message to worldwide market participants catalysing investment into key sectors such as automotive and financial services.

"While not all of our concerns were addressed in this law, it is time to move forward", he added. The new foreign investment law will replace the three older statues that govern foreign invested entities and serve as the "unified law" for foreign investments in China. While the law may be positive for the trade talks and foreign companies operating in China, not everyone is satisfied.

The European Chamber singled out one of the law's stipulations that permits China tit-for-tat retaliation against any country that discriminates against Chinese investment. As a reaction to the political and economic power of China had to strive for the EU Commission on Tuesday held a ten-point plan submitted, so that European interests are safeguarded.

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