China‘s National People‘s Congress (NPC) passes new bill for foreign investments

By the end of the annual conference on March 15th 2019 China has voted for a new law that is supposed to bring an end to the disadvantages of foreign firms in China and aims for fair competition. The legislative regulations shall come into force on January 1st 2020. This Foreign Investment LAW (FIL) thus poses a legal foundation for investment- and business activities in China.

The new law will replace three Chinese laws, passed during the early years of China´s market liberalization. Namely the Law on Sino-Foreign Equity Joint Ventures, the Law on Sino-Foreign Contractual Joint Ventures and the Law on Wholly Foreign Owned Enterprises (WFOE). By doing so, the FIL will be the first unified legal standard for foreign investment activities in the PRC. 

Aim of the new law is to offer foreign companies equal treatment when compared to Chinese companies. This includes providing better market access and offering a higher amount of legal protection. Hence governmental support for example can be used more easily. This does not include companies, that are part of the “negative-list”.

Moreover, the new law includes, that foreign companies from now on do not have to reveal their proprietary technology to their Chinese Joint Venture partners anymore. Furthermore, the companies shall be protected from illegal government interference. The protection of their intellectual property shall be improved.

Another point is that the capital export shall be eased. Thus, the new legislation intends that revenues connected to investments like capital gains or license fees can be transferred out of the country for free. 

The FIL intends a transitional period of five years. During this time, already existing Joint Ventures and WFOEs need to adapt their organizational structures. Looking at Joint Ventures for example, the highest organ of the company´s hierarchy in the future will not be the Board of Directors but the Shareholder´s Meeting.

The law includes one article, indicating exceptions from the principle of equality. The exceptions refer to the origin of a company and offer China the possibility to react through measures on countries that restrict Chinese investments.