On January 19, 2015, Ministry of Commerce (MOFCOM) brought out Foreign Investment Law of the People’s Republic of China (Exposure Draft) to solicit opinions from the general public. For this purpose, MOFCOM Spokesman Sun Jiwen, made a speech.
Sun Jiwen said Law on Chinese-Foreign Equity Joint Ventures, Law on Foreign Capital Enterprises and Law on Chinese-Foreign Contractual Joint Ventures which were formulated in early years of China’s reform and opening up (hereinafter referred to as “Three Foreign Investment Laws”) provide a legal basis for China to make use of foreign investment and they make constructive contributions to pushing forward China’s reform and opening-up. With development and evolution of domestic and foreign situations, the existing Three Foreign Investment Laws, however, can hardly meet the requirements for further deepening the reform or opening up in an all round manner. For reasons, firstly the management mode “case-by-case examination and approval system” established by Three Foreign Investment Laws is inadaptable to the requirements for construction of a new open economic system, and is not conductive to activate the market or transform governmental functions; secondly some provisions of Three Foreign Investment Laws on enterprise organization forms and operating activities repeat, and even conflict with, the provisions of Company Law and other relevant laws; and thirdly, important systems on foreign M&A and national security review are required to be included in fundamental laws on foreign investment and to be further perfected.
Some concepts were raised at the Third Plenary Session of the 18th CPC Central Committee, including “constructing a new open economic system”, “unitizing laws and regulations on domestic and foreign investment and keeping foreign investment policies stable, transparent and foreseeable”, “reforming the foreign investment examination and approval system” and “exploring the management mode of national treatment plus negative list prior to admission of foreign investment”, and the Fourth Plenary Session of the 18th CPC Central Committee required “adapting into the deepening opening-up, improving foreign-related laws and regulations and promoting construction of new open economic system”. All these direct us to amend Three Foreign Investment Laws. To implement and execute the spirits of the Third and Fourth Plenary Sessions of the 18th CPC Central Committee and subject to Legislation Program of the Standing Committee of the Twelfth NPC and 2014 Legislation Plan of the State Council, MOFCOM initiated to amend Law on Chinese-Foreign Equity Joint Ventures, Law on Foreign Capital Enterprises and Law on Chinese-Foreign Contractual Joint Ventures to work out the Foreign Investment Law of the People’s Republic of China (Exposure Draft).
In our opinion, the general notion for amending the Three Foreign Investment Laws is “Three into One”, i.e. forming the only and uniform Foreign Investment Law. This Foreign Investment Law should be a law that deepens structural reform, makes opening wider to the outside, facilitates foreign investment and regulates foreign investment administration.
- Deepen structural reform: The Exposure Draft upgrades the existing foreign investment management systems and adopts the management mode of national treatment plus negative list prior to admission. It abolishes the management mode “case-by-case examination and approval system” established by Three Foreign Investment Laws, no longer requires administrative approval for the contracts and charters of foreign-invested enterprises and reconstructs a management system for foreign investment admission by virtue of “limited permit and comprehensive reporting”. Foreign investors must apply for the foreign investment admission permit before they are allowed to invest in the negative list, and they must perform the obligation of reporting when investing in either negative list or non-negative list in China,. Where the management mode of negative list is adopted, the majority of foreign investment admissions will no longer require examination and approval.
- Open wider to the outside: Where the management mode of national treatment plus negative list prior to admission is adopted, the fields to which the foreign investment is prohibited or restricted will be included in a list; and the fields rather than those included in that list will be fully open to investment and these foreign investors or investment will receive the treatment no inferior to that for Chinese investors or investment. Next, we will, in strict accordance with the requirements for constructing new open economic system and implementing high-level opening-up, further ease foreign investment admission.
- Facilitate foreign investment: Now, strengthening governmental functions in facilitating foreign investment is a new tendency in foreign investment legislations and policies of the countries all over the world. The Exposure Draft provides for policies and measures to facilitate international investment, improves the professional level of international investment facilitation, better protect the interests of foreign investors and their investment and consolidate the mechanism for coordination and handling of foreign investment complaints.
- Regulate foreign investment administration: While easing foreign investment admission and sharpening the decisive role of market in resource allocation, the Exposure Draft further perfects foreign investment admission management system, national security review system and foreign investment promotion and protection system, incorporates the contents subject to the supervision and inspection over the investing and operating activities of foreign investors and foreign invested enterprises, and strengthens process supervision and post supervision.
The Exposure Draft no longer takes the organization forms or operating activities of foreign-invested enterprises as main items to be regulated. As for the organization forms and operating activities of foreign-invested enterprises, on basis of uniform principles for domestic and foreign investment, relevant laws and regulations, such as Company Law, will apply in an uniform manner. In addition, the Exposure Draft no long requires different rules for different enterprise types. The uniform Foreign Investment Law will generally apply to all the foreign investment into China, regardless of what or how foreign investors have established these businesses or put investment in China.
Sun Jiwen pointed out that the Fourth Plenary Session of the 18th CPC Central Committee required “deeply promoting scientific legislation and democratic legislation”. It is widely-covered, complicated and highly-focused to amend Three Foreign Investment Laws and to formulate Foreign Investment Law. MOFCOM welcomes the attention and invaluable advice from all walks of life. We will deliberate public advice, further perform the design of relevant laws and strive to work out a fundamental law on foreign investment which accords with economic development and fundamental realities of China and adapts to development requirements of internationally prevailing rules, so as to create a more stable, transparent and foreseeable legal environment for foreign investment.
Translated by Hu Xiaoying