On the back of the China-US trade talks, the new Foreign Investment Law of the People’s Republic of China (the “FIL”) took around three months to pass, from draft. It is reported that this was an unprecedented fast turnaround in the legislative history of China.
The FIL introduces many fundamental changes to China’s foreign investment law system and will replace three main laws, namely:
- The Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures
- The Law on Sino-Foreign Contractual Joint Ventures
- The Law on Wholly Foreign-Owned Enterprises
Almost all the issues of concern arising from the recent trade dispute and resulting negotiations between the U.S. and China were addressed in the FIL. These issues include:
- Technology transfer – the FIL prohibits forcing technology transfer;
- Intellectual property rights – the FIL expressly provides protection of the intellectual property rights of foreign investors;
- Equal treatment & regulatory transparency – the FIL aims to create a stable, transparent and predictable market environment. Domestic and foreign investors are to be administered equally;
- Consistency between central and local policies – local governments, in accordance with applicable laws, may formulate policies and measures to promote and facilitate foreign investment.
The change in the Sino-U.S. economic and trade relations presented China with both challenges and opportunities and led to this boost in far-reaching reform in their foreign investment system. China appears to have used this opportunity to introduce a number of reform measures to lower market access thresholds; provide better protection of intellectual property rights and a level the playing field for international investors.
There will be many challenges to the implementation and adoption of the FIL as they aim to achieve a win-win situation of fostering domestic economic development and promoting international economic cooperation and at the same time addressing potential conflicts that may exist in the current legal system.
There is still much work to be done and a long way to go for the FIL to move from paper to practice on the 1 January 2020, as planned.