Draft law promotes further opening-up
Riding on momentum of 40 years of reform and openingup, China is on way to establishing a new system of opening-up featuring institutional and systemic openness, as reflected in a draft law on foreign investment.
And once the National People’s Congress approves the draft foreign investment law, a new round of institutional dividends will be released.
At present, China’s legal system for foreign investment mainly consists of the Law on Chinese-Foreign Joint Ventures, the Law on Wholly ForeignOwned Enterprises and the Law on Chinese-Foreign Cooperative Joint Ventures. But since certain sections and articles of these laws cannot deal with the changing global realities or settle disputes, China has drafted a comprehensive foreign investment law to replace them.
More opportunities for foreign firms
The draft law is designed, among other things, to protect foreign investors’ legitimate rights and interests. And as Premier Li Keqiang said while delivering the Government Work Report on Tuesday, “China’s investment environment is all set to get better and better, which means more and more business opportunities for foreign companies in China are a sure thing.”
Late last year, the NPC, China’s top legislature, started soliciting opinions for the draft foreign investment law to replace the three old laws. This shows China has taken a significant step toward institutional opening-up, which is different from the basic opening up of commodity factors and market.
China is entering a new stage of institutional and rule-based opening-up, which is more advanced compared with the opening up of the market. For example, by building free trade pilot zones, China has expanded the depth and width of reform and opening-up.
Also, China’s overall business environment has notably improved. It is one of the top 10 global improvers in terms of business environment, according to the World Bank’s Doing Business 2019: Training for Reform report. Ranking second worldwide, China implemented a record number of seven reforms last year to make it easier for small and mediumsized enterprises to do business, which among other factors enabled it to rise to the 46th spot, up from 78th in 2017, on the ease of doing business list.
China bucks trend of falling foreign investment
Thanks to the impact of the China-US trade conflicts, global foreign direct investment is in the dumps. The Global Investment Trends Monitor issued by the UN Conference on Trade and Development shows global foreign direct investment fell by a large margin — 19 percent — last year, marking a third straight year of decline.
But China bucked the trend, as 60,533 foreign-invested enterprises started business in China last year with the actual use of foreign investment reaching $132.12 billion, a year-on-year growth of 69.8 percent and 0.9 percent, respectively. Among which, high-tech manufacturing grew 35.1 percent, reflecting foreign investors’ optimism on China’s growth potential.
The draft foreign investment law shows China’s firm resolve to build an open economy. And the strength of the draft law is that it complies with the trends and changes in the global investment system and stipulates more thorough and explicit implementation of the pre-establishment national treatment with the negative list for foreign investment, and embodies foreign investors’ appeal to ensure freer and more convenient investment.
Number of items on negative list shrinking
China is fully implementing the pre-establishment national treatment and negative lists for foreign investment, more than 96 percent of which has been filed with local governments. Also, China released three negative lists including the Special Administrative Measures on Access to Foreign Investment in the second half of last year, with the number of items on the lists constantly shrinking.
The promotion and protection of foreign investment are another bright spot in the draft law. To promote foreign investment, not only pre-establishment measures, but also equal treatment to foreign investment have been included. For instance, the draft law stipulates that special economic zones could be set up to boost foreign investment and opening-up. Besides, the various policies that China has introduced to support domestic enterprises apply to foreign enterprises as well.
These institutions and rules not only demonstrate the principle of fairness, transparency, competitive neutrality and equal treatment of foreign and domestic enterprises, but also help foreign investments’ integration with the Chinese economy.
Foreign companies can transfer profits abroad
The draft law clarifies that the contribution, profits and capital gain foreign investors make in China could be transferred out of the country in renminbi or foreign currency according to law. Apart from laying emphasis on safeguarding foreign investors and foreign-invested enterprises’ intellectual property and encouraging international technological cooperation, it also says that no administrative approaches should be adopted to force technology transfer. Which has become a point of contention between China and Western countries, especially the United States, even though China has never forced any foreign company to transfer technology.
Therefore, the draft law lays the foundation of granting institutional and legal protection to foreign investment and international cooperation on technology. As President Xi Jinping noted, reform and opening-up are an ongoing process. And in the future, China will further expand the sectors open to foreign investment.
At the moment, though, China has proposed 22 opening-up measures to broaden foreign investment’s access in fields such as finance, automobiles, shipping, railways, agriculture, mining and power grid, and reduce its restrictions on foreign investors’ holding equities in sectors such as banking and securities, so as to enable the establishment of wholly foreign-owned enterprises and fully open licensing for foreign investment.
Foreign investors can help reform SOEs
Moreover, China welcomes foreign investors to participate in State-owned enterprises’ reform through measures including building equity joint ventures. In general, advanced standards and rules should be adopted in the institutional opening-up process. The intensity of reform and opening-up should be strengthened in fields including licensing, industrial policies, competition policies, SOE reform and business environment, in order to facilitate the shift to institutional opening-up from the basic opening up of commodity, factors and market.
The course of China’s reform and opening-up is in step with globalization. And it could only go upward. Yet it is impossible for a single law to cover all aspects of foreign investment and help settle all related disputes. But since China is still in the middle of the reform and opening-up process, there is a long way ahead for it to comprehensively improve modern market economy and realize its goals.