Landmark law boosts China's appeal for foreign investors

BEIJING - Since the outbreak of the COVID-19 pandemic in early 2020, the confidence of global investors has been dented by mounting uncertainties. However, China has remained a strong magnet for global investors over the past three years, with the country's landmark Foreign Investment Law offering a powerful guarantee for law-based opening-up.

On Jan 1, 2020, the world's second-largest economy enforced the milestone law, which includes a comprehensive and fundamental set of legal standards for foreign investors and aims to better protect their rights and interests. With the law in effect for three years now, the growing appeal of the Chinese market can be seen in the clear signs of foreign capital inflow.

Foreign direct investment (FDI) into the Chinese mainland, in actual use, totaled 999.98 billion yuan ($143.6 billion) in 2020 and jumped to 1.5 trillion yuan in 2021, data from the Ministry of Commerce (MOC) shows.

In the first 11 months of 2022, the FDI inflow expanded 9.9 percent year-on-year to nearly 1.16 trillion yuan, guaranteeing that China would secure a record-high FDI inflow for another year.

"The Foreign Investment Law ensures China's investment environment and foreign investment system in legal form and plays an important role in stabilizing the confidence of multinational companies to China, as the world faces slower economic growth and surging inflation," said Zhao Beiwen, deputy director of the Institute of World Economy, Shanghai Academy of Social Sciences.

Better, law-based protection

With unified provisions for the entry, promotion, protection and management of foreign investment, China's Foreign Investment Law has addressed foreign firms' concerns and provided facilitation and ease to foreign investment.

China has stressed a level playing field for domestic and foreign companies, banned forced technology transfer, and improved the mechanism for foreign-invested firms to file complaints, according to the Foreign Investment Law and its implementing regulations.

Hence, foreign-invested enterprises continue to expand their footprint in China, with an average of 43,000 foreign-invested enterprises newly established each year in 2020 and 2021, according to the MOC.

As of the end of September 2022, a total of 455,000 foreign enterprises were registered, and more than 2,000 regional headquarters and research and development (R&D) centers of multinational companies had been set up in China, MOC data shows.

In November last year, Schneider Electric set up its fifth-largest research institute in China.

"China's economy is bursting with new growth vitality and posts huge market potential," said Yin Zheng, executive vice president of Schneider Electric and president of Schneider Electric China.

"Foreign enterprises, especially high-tech foreign-invested enterprises, pay more attention to intellectual property protection than labor-intensive ones. The Foreign Investment Law has ensured a fair competition environment with rules and transparency," Zhao said, adding that the protection of intellectual property rights has boosted China's attraction to foreign capital inflow.

From January to November 2022, FDI in high-tech manufacturing surged 58.8 percent from the same period of the previous year, while that in the high-tech service sector rose 23.5 percent year-on-year, data from the MOC shows.

Broader institutional opening-up

China has established the model of pre-establishment national treatment plus a negative list for foreign investment, according to the Foreign Investment Law.

Zhao said the moves were part of China's broader institutional opening-up efforts and demonstrated China's transition to actively integrate into international economic and trade systems.

"It showed China's determination to shift from commodity and element opening to rule-based opening in the form of laws and regulations," Zhao added.

In 2022, China fully implemented the shortened negative list for foreign investment, expanded the encouraged investment catalog, and added more cities to the pilot program of opening the service sector.

From 2020 to 2022, China dropped laws, regulations and normative documents inconsistent with the Foreign Investment Law, and promoted the establishment, revision and abolition of more than 500 documents, said the National Development and Reform Commission.

A survey by the MOC and the official website of China's central government (www.gov.cn) of 3,130 foreign firms showed that the implementation of the Foreign Investment Law has boosted expectations and confidence in the Chinese market among nearly 90 percent of the respondents.

GLP, a global investment manager and business builder in logistics, data infrastructure, renewable energy and related technologies, has seen its business volume continuously expanding, with the assets under management in China hitting $72 billion.

"GLP witnessed the continuous improvement of the business environment in China, with higher level internationalization and opening-up," said Zhuge Wenjing, executive vice chairperson of GLP China. "Our business has achieved sound growth as the country continued to deepen reform and opening-up."

The annual Central Economic Work Conference held in mid-December last year reaffirmed China's resolve on opening-up at a higher level.

The country will make greater efforts to attract and utilize foreign capital, widen market access, promote the opening-up of modern service industries, and grant foreign-funded enterprises national treatment, the meeting said.

"The central economic work conference stressed efforts to attract and utilize foreign capital and has made precise arrangements. It is unprecedented rhetoric in my memory," said Long Guoqiang, deputy head of the Development Research Center of the State Council.

On improving the business environment, Long said that more should be done to align high-standard economic and trade rules, and steadily expand institutional opening regarding rules, regulations, management and standards.