Foreign investment law essential amid changing times, says top legislature

The formulation of the foreign investment law follows strict legislative processes, is based on a sufficient amount of public opinion and represents a consensus, legal professionals said.

The law, which is undergoing review by national legislators at the ongoing session of the National People’s Congress, is expected to be put up for a vote on Friday.

If passed, it will serve as the fundamental law covering foreign investment in China. And the three existing laws on Chinese-foreign equity joint ventures, wholly foreign-owned enterprises and Chinese-foreign contractual joint ventures will be abolished, according to the Legislative Affairs Commission of the NPC Standing Committee.

Wang Chen, vice-chairman of the NPC Standing Committee, said on Friday that the new law draws on China’s practical experience with foreign investment laws over the past 40 years.

“It will establish a basic framework for China’s new foreign investment legal system and reaffirm China’s fundamental national policy of opening-up and its major policy of promoting foreign investment,” he said while explaining the draft law to national legislators.

Following a strict process, the law was included in the five-year legislation agenda of the Standing Committee of the 13th NPC, which was elected in March last year, and also in its detailed work plan for 2018.

After thorough research and the solicitation of opinions, the State Council — the nation’s Cabinet — made a draft of the foreign investment law and submitted it to the NPC Standing Committee for review for the first time in December.

After the deliberation, the top legislature solicited opinions from the public and from foreign enterprises through various means such as holding seminars and releasing the full text of the draft online. A second draft version was formed and submitted to the NPC Standing Committee for a second review at the end of January.

China’s Legislation Law stipulates that a draft law usually goes through three reviews before being adopted, and those that play pivotal roles in major sectors should be submitted to the annual full meeting of the NPC for review.

“And the foreign investment law will serve as a foundation for promoting and regulating the country’s foreign investment environment,” the commission said in a written explanation.

Therefore, the NPC Standing Committee, after reviewing the draft law twice, decided to submit it to the second session of the 13th NPC for a third review.

Another reason for its being deliberated at the full session of the NPC is that with its adoption, the previous three separate statutes concerning foreign investment, which were adopted by NPC plenary sessions in 1979, 1986 and 1988, will be abolished.

In China, laws passed by the full session of the NPC can only be abolished by its full session, according to the Legislative Affairs Commission.

Regarding the relatively fast legislation process, Zhang Yesui, spokesman for the second session of the 13th NPC, said that the three current foreign investment-related laws are lagging behind the nation’s new open economy and new challenges in foreign investment, indicating that a new law is urgently needed.

Kong Qingjiang, head of the International Law School at the China University of Political Science and Law, said the process shows strong anticipation of such a law from both the government and the public.

It also shows that basic consensus has been reached on some major issues and principles stated in the law, he was quoted by China Newsweek as saying.

The draft of the foreign investment law is to be presented to the country’s top legislature for approval on Friday, and no one should underestimate its importance. The three existing laws related to foreign investment — the law on Chinese-foreign equity joint ventures, on Chinese-foreign contractual joint ventures and on wholly foreign-owned enterprises — have played their roles in promoting China’s opening-up in the past four decades. It would have been unimaginable for China to receive the most foreign direct investment for 26 consecutive years since 1992 among developing countries without these three laws.

However, with the size of the Chinese economy rising to be the world’s second-largest, the rise in its labor costs, the country’s much higher environmental requirements and the urgent need for higher quality economic growth and upgraded high-tech industries, opening the door wider to foreign investment has become a necessity.

The pre-entry national treatment plus negative list as stipulated in Article 4 of the draft law suggests that almost all restrictions on foreign investment in the previous three laws will be scrapped except for those on the negative list.

And Article 9 of the draft stipulates that government policies supporting the development of enterprises apply to all foreign-invested companies, which are also eligible to compete for government procurement contracts.

No wonder that promotion of foreign investment has been interpreted as the gist of the law.

To be exact, the law is meant to create a fair and even competition environment for foreign companies to compete with their Chinese counterparts.

The draft also has detailed stipulations about the protection of intellectual property, protection of the legal rights and interests of foreign companies and prohibition of forced technology transfer.

If domestic enterprises, either private ones or State-owned ones, needed special care for their growth in the early years of reform and opening-up, they are no longer infants and the special care they received in the past, if maintained, would only spoil them. They need more competition for them to grow stronger.

This is what the new law for foreign investment means to the development of China’s domestic enterprises. This should also help explain why it means a great deal for China to open its door wider. It must subject its domestic enterprises to real and fair competition.

When globalization is on the ebb with protectionism and unilateralism on the rise, this new law on foreign investment is another manifestation of the country’s commitment to the world that it will do whatever it can to throw its weight behind globalization and if possible take the wind out of the sails of anti-globalization. Not the least because the country believes that an open and inclusive world economy is in the interests of all countries.