China's parliament approves new foreign investment law

Sergio Conner
March 17, 2019

China's rubber-stamp parliament approved a foreign investment law on 15 March that may serve as an olive branch in trade talks with the United States, but it received a lukewarm welcome from business groups.

While 2,929 delegates voted in favor of the law, eight voted against and eight abstained.

People walk past a construction site in Beijing, China. The two sides slapped tariffs on exports worth hundreds of billions of dollars previous year. The tit-for-tat tariffs and rising protectionist tendencies have hurt business sentiment worldwide and stoked uncertainty.

Top trade officials from America and China are holding talks to negotiate a comprehensive trade deal.

The law will come into effect on January 1, 2020, the state news agency said.

Linklaters analysis projects US$1.5 trillion of inbound investment into China over next ten years catalysed by new Foreign Investment Law.

Beijing will introduce a series of regulations and documents in accordance with the foreign investment law to better protect the legitimate rights and interests of foreign investors, Chinese Premier Li Keqiang told a press conference after the conclusion of the legislative session.

Li said China will soon announce shorter negative lists and continue to trim them in future, "increasing the scope of what is not prohibited".

But Western observers remain skeptical.

It aims to improve the transparency of foreign investment policies and ensure that foreign-invested enterprises participate in market competition on an equal basis.

Shares on Chinese stock exchanges climbed after the government reaffirmed its commitment to boosting growth.

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"I believe that the last major blocking was in autumn 2017", an engineer of Express VPN, one of the most popular VPN providers, told Kyodo News.

There was some criticism of the law change, however, with the American Chamber of Commerce calling some of the provisions "quite general".

"More than anything else, foreign companies want equal treatment and opportunities", said Mats Harborn, president of the European Union Chamber of Commerce in China.

They "could easily be used as pretense to discriminate against foreign companies", analysts at consulting firm Trivium China wrote in a commentary this week. By the end of 2018, China had set up about 960,000 foreign-invested enterprises with an accumulated total of more than 2.1 trillion USA dollars of foreign capital utilized.

The FIL has been formulated to integrate three existing laws on foreign investment which are the Chinese-Foreign Equity Joint Ventures, Chinese-Foreign Contractual Joint Ventures and Foreign-Owned Enterprises law.

The new act mandates an antitrust review for mergers and acquisitions.

Some misunderstandings of the global community on foreign investment in China in recent years can also be cleared by this legislation.

"What the security audit for foreign investment will look like and what this means in practice for foreign companies is not yet clear", said MERICS expert Drinhausen. It comes as the country is expanding its military presence in the region.

But some argue it does not fully address the concerns foreign firms have about doing business in China.

US President Donald Trump said on 14 March the negotiations should wrap up within four weeks, adding: "We are getting what we have to get".

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