The Foreign Investment Law in China came into effect on 1
January 2020 to replace other existing laws and Bill Guo, Managing
Director, China, highlights why this is good news for the
region.
China’s new Foreign Investment Law: will your
investment concern in China be minimised?
The Foreign Investment Law (FIL) will replace the PRC Law on
Sino-foreign Equity Joint Ventures, the PRC Law on Wholly
Foreign-owned Enterprise, the PRC Law on Sino-foreign Cooperative
Joint Ventures, and is effective as of 1 January 2020.
WHAT GOOD NEWS DID YOU GET FROM THE FIL?
-
National Treatment on the market entrance, except those
in the Negative ListThe FIL emphasises that foreign investment in China will get
pre-national treatment, which means national treatment will be
given equally to the foreign investment, unless the investment
would fall into the Negative List issued by the State Council of
China. -
Simplified registration process
Registration rather than approvals. The FIL formally does away
with the prior systems that required approval by the Ministry of
Commerce and registration with the Administration of Industry and
Commerce before a foreign investment could be permitted into
China. -
Well protected Intellectual Property rights
One main concern of foreign investors, before they make
decision, is whether their IP could be protected in China. The FIL
gives a good answer, and especially specified that the government
cannot force the IP transfer by administrative method.
However, with the rapid development of China’s capital
market, the quota limitation of QFII and RQFII is no longer
suitable for China’s opening environment of capital market.
Furthermore, it also has no benefit for those investors manage
their assets like bonds and stocks through different channels. With
the limitation, it’s hard for both the investors and
China’s capital market achieve more progress. Till the end of
August 2019, the QFII and RQFII only hold 1.5% market values of
A-share stock market.
“In the past, China’s government has always had strict
rules on how foreign investors work in China’s capital
market”
This reform of removal of quota limitation, is a big step to
fulfil the requests from foreign investors, and shows that the
Chinese government is building a better investment environment. It
also highlights that they’re continuing to deepen the reform of
foreign exchange administration, expanding opening-up, supporting
foreign investors to invest in domestic capital markets and
facilitating cross-border investment and financing.
For more information on China’s foreign investment law and
our offering in China, please get in touch.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
