Advertisement
Advertisement
China economy
Get more with myNEWS
A personalised news feed of stories that matter to you
Learn more
China’s draft foreign investment law will be debated for a full day on Sunday during the National People’s Congress in Beijing. Photo: Xinhua

China’s rushed foreign investment law gains lukewarm response from local and international businesses

  • Draft legislation, set to be debated at the National People’s Congress, covers items on the wish list of US President Donald Trump to end the US-China trade war
  • Slimmed down version of law first drafted in 2015 raises concerns that enforcement and implementation have been sacrificed

China’s draft foreign investment law is expected to be one of the flagship announcements at the ongoing National People’s Congress in Beijing, but it has received a lukewarm response from businesses and academics in China.

Among the foreign business community in China, there is a shared view that the draft foreign investment law (FIL) lacks substance and that it is being rushed through in a bid to meet some of the terms of a trade war truce laid out by US President Donald Trump.

“We are concerned that the drafting of the FIL is being squeezed between the normal legislative process and the negotiation table with the US, in part to address the trade conflict,” said Mats Harborn, president of the European Union Chamber of Commerce in China, who called for a more considered and consultative drafting of the law.

The FIL is moving through China’s legislative process at unprecedented speed and sets out to offer more protection to foreign businesses in China.

It covers many of the items on Trump’s reform wish list, including forced technology transfer, intellectual property protections and the safeguarding of foreign companies’ capital.

The draft law seeks to “further expand the scope of opening-up, to actively promote foreign investment, to protect the lawful rights and interests of foreign investment”.

The FIL will be debated for a full day on Sunday in Beijing, which may generate amendments.

A revised draft of the law will pass to the whole NPC for review on Tuesday before being put to a vote on Friday, the only other piece of legislation being voted on alongside the government’s work report and budgets.

The new draft is significantly slimmed down on its predecessors, which has led to some concern that the enforcement and implementation chapters of the document have been sacrificed for more aspirational aims.

“It has some good language in it, but it’s a lot shorter than the original drafts,” said Timothy Stratford, chairman of the American Chamber of Commerce (AmCham) in China and former assistant US trade representative for China affairs.

“It is shorter because a lot of the implementing detail has been chopped out of that. It’s statements of aspiration and those are positive, but how are they going to be implemented in practice, that is what we cannot tell.”

We are concerned that the drafting of the FIL is being squeezed between the normal legislative process and the negotiation table with the US, in part to address the trade conflict.
Mats Harborn

There is a general sense that those who have studied the document are underwhelmed.

“Our clients have mostly been ambivalent about the law – we haven’t heard much one way or the other about it,” said Walker Wallace, managing partner of law firm O’Melveny’s Shanghai office.

“Unless something completely substantive is getting added to this, it is pretty inoffensive.”

Two notable Chinese academics dismissed the law as a quick fix designed to assuage US negotiators.

He Weifang, a professor at Peking University and long term supporter of reform of China’s judicial system, said it was mainly “about slogans”.

“The draft lacks rigid items and there is no clear boundary of violation. For forced technology transfer, the identification of ‘forced’ is very ambiguous, there are many ways for Chinese government to do forced technology transfer even after the law is passed,” he said.

“The acceleration of the review of the FIL is obviously due to pressure from the trade war. I doubt it could ever boost foreign investor confidence in China.”

Cao Yisun, a delegate at the simultaneous Chinese People's Political Consultative Conference and professor at the China University of Political Science and Law said that “the trade war has played a large role in accelerating the review process”.

This view is shared by many business groups in China, which said that if China was serious about protecting foreign companies’ rights, they would not need to create a separate law for foreigners in the first place.

“While it may improve intellectual property rights protection, there’s little clarity on how the government will implement many of its provisions. A bigger issue is why there still needs to be a separate regime for foreign investors versus domestic players,” said Ker Gibbs, president of AmCham in Shanghai.

Jens Hildebrandt, executive director of the German Chamber of Commerce in North China, added: “We call on the Chinese government to move further towards the principle of equal treatment and to govern all legally established companies in China under the same laws and regulations that apply to domestic enterprises.”

A bigger issue is why there still needs to be a separate regime for foreign investors versus domestic players.
Ker Gibbs

The speed of the law’s passage has surprised many, as ordinarily, the process would take a number of years.

It was first drafted in 2015, but was shelved until the end of 2018, when it was revived in response to the ongoing trade war, and also the exodus of international companies from China.

Long upset by issues over investment protections and rising labour costs, the added geopolitical friction has helped hasten the flow of manufacturing companies out of China, with many reallocating production to plants elsewhere in Asia.

At the NPC, the government presented the FIL as a mechanism for addressing many of the issues raised by foreign firms in China.

Foreign investors will be allowed to set up ventures in which they have full ownership, instead of being forced into joint ventures with local partners, in more industries, Ning Jizhe, a vice-chairman of the National Development and Reform Commission, told the NPC on Wednesday.

A revised draft of the law will pass to the whole National People’s Congress for review on Tuesday before being put to a vote on Friday. Photo: EPA

However, there is a common view that the law is only as good as its enforcement – the details of which are scant in the draft document.

“Even the existing foreign investment law could protect foreign business if it was implemented seriously by local authorities,” said Liu Kaiming, head of the Shenzhen-based Institute of Contemporary Observation.

“To restore the confidence of the business community, it is not just a matter of amending a law, but how to establish judicial independence in politics. There is no solution so far in the mainland.”

A number of Chinese delegates at the NPC and CPPCC voiced support for a strong FIL, without commenting on the quality of the draft law currently under consideration.

“Protecting the rights of foreign businesses in China is critical for our international influence and image,” said Hu Sishe, a CPPCC delegate and vice-president of the Chinese People's Association for Friendship with Foreign Countries.

“We also need to increase our intellectual property protections, so that this idea can enter the hearts of the people. This has become a focal point.”

To restore the confidence of the business community, it is not just a matter of amending a law, but how to establish judicial independence in politics. There is no solution so far in the mainland.
Liu Kaiming

Yang Jun, an NPC delegate from the Yunnan delegation, said the FIL may help to improve the investment environment for domestic firms.

“Setting this kind of law is very necessary,” he said. “We need to, based on international practices and national interest, improve work in [the areas of intellectual property and tech transfers]."

Chinese companies, meanwhile, are unsure as to whether a law that could potentially make foreign companies more competitive in China would be of any threat to their business.

“We heard little about the new investment law. We have foreign-brand competitors, but I think it should have little effect on our business,” said Linda Chen, a sales manager for an unnamed company that produces table accessories for export.

Additional reporting by Huifeng He

Post