A potential deal to resolve the US-China tariff battle could address so-called structural issues related to China’s policies that coerce foreign firms to hand over valuable technology as a precondition to doing business in the Chinese market.

An agreement is also expected to provide new market access for US manufacturers and farmers and ease nontariff barriers that have kept US products out of the Chinese market.

The law, set to take effect on January 1, 2020, will replace a trio of laws pertaining to foreign capital that were passed between 1979 and 1990, in the early stages of Beijing's effort to reform its economic policy and open its market to overseas investment.

White House National Economic Council Director Larry Kudlow described the law as encouraging, saying it “will restrain any intellectual property theft and will also restrain any forced transfer of technology”. 

“That’s extremely promising,“ Kudlow said Friday on C-SPAN.

But the top White House economic official said “patience is a virtue” when it comes to expectations for a final deal.

Kudlow said there are still issues to be resolved, particularly with how the US will enforce any commitments China makes.

He added that China has preliminarily agreed to an enforcement arrangement that would give the US the authority to unilaterally impose tariffs if there is a violation and Beijing would not retaliate — something US President Donald Trump indicated support for in a meeting with senators earlier this week.

On Thursday, Trump said the China talks were “moving along,” but he emphasised that “if it's not a great deal for us, we're not going to make it.”

Sources close to the talks said the US and China are still wrangling over the specifics of how a final deal would be enforced and conditions for lifting US tariffs on more than $250 billion worth of Chinese goods.

Another sticking point is conditions for removing joint venture requirements in certain sectors, according to the sources, who declined to be identified because of the sensitive nature of the talks.

“We’ve had conversations about coordinating a presidential visit, and I think they’re still determined and willing to come to Mar-a-Lago for that visit,” Mnuchin said, referring to Trump's resort in Florida.

China’s new law aims to address those concerns by putting a blanket ban on forcing foreign investors to hand over technology. It will also require Chinese officials to keep proprietary information of foreign firms secret or face the threat of criminal prosecution.

“We also hope that foreign governments can view in an objective light that cooperation between Chinese companies and their foreign partners is based on contractual consent,” Li said Friday, adding: “China’s opening up measures will not come only on a one-time basis; they will be introduced quarter after quarter, year after year.”

Li also promised further changes will be made to ease foreign investment, including revision of a separate law covering intellectual property protection and introduction of a mechanism for punitive compensation in cases of intellectual property infringement.

But how China implements and enforces the new law is the real test, critics say.

“There’s just a ton of loopholes in this law that, on balance, may make it more difficult for foreign investors,” said Scott Kennedy, a senior adviser and China economy expert at the Centre for Strategic and International Studies.

Even if Chinese officials are subject to criminal penalties, critics predict that the country’s ruling Communist Party would intervene in cases, providing further proof that China’s judiciary does not operate independently.

Ennis said it is unclear how cases will get prosecuted but said it's a positive sign that China has set up an enforcement channel. Intellectual property courts China established in 2014 are developing a positive track record among US businesses, she said.

“How it’s implemented is going to be essential,” Ennis said. She added that some positive changes were made in drafting of the law, such as a requirement that the measure be implemented based on the central government's interpretation rather than through a patchwork system of provincial and local governments.

The law forbids involuntary technology transfers via “administrative means” but does not define what those are. It also doesn’t address nonadministrative tools that could be used to coerce technology from foreign firms.

The final version of the law also maintained a new national security review process, but it does not define the criteria for assessing whether foreign investments pose a security risk.

The law also includes a provision that would distinguish between foreign-invested firms and domestic enterprises.

“This bifurcated system sets requirements and limitations for foreign investors that do not apply to their domestic counterparts,” the business groups wrote in their January submission.

One source close to the talks also criticised the law because it doesn’t address subsidies or clarify how China’s anti-monopoly law will apply to foreign firms.

It’s still unclear if US Trade Representative Robert Lighthizer, who is leading the talks for the US, views the law as an acceptable way to resolve US complaints.

“A big part of what China is offering [in the talks] is in the law,” said the source close to the talks.

But China hawks argue that China’s ruling Communist Party only crafts legislation to serve its own interests.

“The law is a tool for the party to stay in power,” said Derek Scissors, a resident scholar at the American Enterprise Institute.

He said a shrewd negotiator like Lighthizer is likely to be distrustful of any actions China may promise through domestic legislation and instead will focus on securing an enforcement mechanism that would allow the US to reserve the right to take swift action if it determines China has violated terms of a potential trade deal.

“The only thing that will change Chinese behaviour is US action,” Scissors said.