Foreign Investment Law of the People's Republic of China

Soon after China's reform and opening up, the country adopted its first law on equity joint ventures in 1979, and the laws on wholly foreign-owned enterprises and cooperative joint ventures were enacted in the 1980s. Over the past decades, they have provided legal safeguards for foreign firms and promoted foreign investment and cooperation in China. As China becomes one of the world's top recipients of FDI, with some 960,000 foreign-invested enterprises and over 2.1 trillion US dollars of accumulated FDI by the end of 2018, the legal framework for foreign investment needed to be updated in order for further reform and opening up. The unified Foreign Investment Law, replacing the three existing laws, was adopted at the Second Session of the 13th National People's Congress on March 15, 2019, and came into effect on January 1, 2020. == Key provisions ==

The Foreign Investment Law calls for the gradual elimination of caps on foreign ownership in key Chinese industries, including oil and gas exploration, nuclear fuel production, and some parts of the finance sector. The Law's key provisions are as follows: • The competent departments for commerce (Ministry of Commerce) and for investment (National Development and Reform Commission) are delegated with the major responsibility to promote, protect, and manage foreign investment. • All national policies on supporting the development of enterprises shall equally apply to foreign-funded enterprises in accordance with the law. The government establishes a service system for foreign investment, and provides foreign investors and foreign-funded enterprises with consultation and services in respect of laws and regulations, policies and measures, investment project information, and other aspects. • The government is not to expropriate any investment made by foreign investors. Under special circumstances, the government may expropriate or requisition an investment made by foreign investors for public interests, in accordance with the law. Such expropriation or requisition shall be made pursuant to statutory procedures, and fair and reasonable compensation will be given in a timely manner. • A foreign investor may freely transfer inward and outward its contributions, profits, capital gains, income from asset disposal, royalties of intellectual property rights, lawfully obtained compensation or indemnity, income from liquidation, and so on within the territory of China in CNY or a foreign currency. • The government protects the intellectual property rights and trade secrets of foreign investors and foreign-funded enterprises, and encourages technology cooperation on the basis of free will and business rules. It bans forced technology transfers. • The government establishes a safety review system for any foreign investment affecting, or having the possibility to affect, national security. In 2022, the negative list restrictions were lifted. The government also issued a positive list of industries where foreign investment is encouraged. == Comments ==

Wang Chen, vice chairman of the NPC Standing Committee, said the Law shows China's will and determination to follow through with reform and opening up in a new historical context, and that "it is a full testament to China's determination and confidence in opening wider to the outside world and promoting foreign investment in the new era." In the view of economist Stephen Roach, the Law's call for the phasing out of caps on foreign ownership in various key industries reduces the need for joint ventures in China and promotes direct acquisitions by foreign enterprises. Jake Parker, senior vice president at the U.S.-China Business Council, said the Law still falls short of "specifying what kinds of trade secret disclosures will be prohibited, and clarifying which kinds of administrative departments the provisions on technology transfer may apply to." It is also "vague on how communication channels between government agencies and foreign entities will be managed, and how feedback will be incorporated." == See also ==