China to further encourage, protect foreign investment

The State Council issued the Regulation on Implementing the Foreign Investment Law of the People's Republic of China on Dec 31, in an effort to further improve business environment and promote higher level opening-up.

Premier Li Keqiang signed a State Council decree to release the regulation. As a matching regulation, it will be implemented along with the Foreign Investment Law starting Jan 1, 2020. It specifies measures to promote foreign investment, protect the legitimate rights of foreign investors and regulate foreign investment management.

The government should treat domestic and foreign-invested enterprises lawfully and equally in government funding, land supply, tax and fee cuts, license awarding, standard setting, project application, and human resources policies, among others, according to the document.

Equality is also reflected in the requirement that the government should not stop foreign companies from entering the local government procurement market.

Foreign investors and foreign-invested enterprises will enjoy preferential treatment in government funding, tax, finance, land use, etc., in accordance with China’s laws and administrative regulations or rules of the State Council.

In formulating administrative regulations, rules and normative documents as well as local laws and regulations governing foreign investment, opinions should be solicited from foreign-invested enterprises and associated chambers of commerce and associations, according to the document.

Foreign companies are entitled to equal and lawful participation in the formulation and revision of national, industrial and local standards. They can make standards-related recommendations and undertake such work as drafting standards.

The regulation allows foreign-invested enterprises to obtain financing within or outside China, among other means, by publicly issuing securities such as stocks and corporate bonds, and publicly or non-publicly issuing other financing instruments and obtaining external loans.

It also pledges strengthened protection of foreign investment, ranging from remittance to complaint handling.

Foreign investment will not be expropriated by the State. In special cases where expropriation is necessary for public interest, legal procedures should be followed in a nondiscriminatory manner, and timely compensation should be made based on market value.

Foreign investors’ capital contributions, profits, capital gains, assets disposal earnings, royalties on intellectual property rights, legitimate compensation or damages, and liquidation proceeds, etc., may be freely remitted to and from China in the form of renminbi or foreign currency. No organization or individual should impose limitations on the type and amount of currency or frequency of remittance.

The government will mete out more severe punishments for IPR infringements, and administrative organs and their staff members should not require forced technology transfer.

Governments above county level should create and improve the mechanism for foreign investors to voice their complaints in a transparent, efficient and convenient manner.

For foreign investors and foreign-invested enterprises, they may apply for an administrative reconsideration or file an administrative lawsuit against an administrative behavior, and can request a review of the normative document on which the behavior is based.

The government will set up a foreign investment security review system aimed at foreign investment that affects or may affect national security.

Foreign investors will be denied access to fields in which their investment is prohibited by the negative list for foreign investment, and should follow special restrictive management measures in fields subject to limited investment.

Meanwhile, the regulation defines legal responsibilities of governments and their staff members if they fail to treat domestic and foreign-invested enterprises equally, restrict foreign enterprises’ equal participation in setting and revising standards, adopt stringent technical requirements exclusively for foreign-invested enterprises, unlawfully restrict remittance by foreign investors, or fail to fulfill their policy commitments or agreed contracts.

Investors from Hong Kong and Macao should refer to the Foreign Investment Law and the implementing regulation when investing in the Chinese mainland. Investment by Chinese nationals settled in foreign countries should be governed by the same.

For investments from Taiwan, the Law on the Protection of Investment by Taiwan Compatriots and its implementing regulation will apply, and matters not covered should be addressed by referring to the Foreign Investment Law and the regulation.