National Treatment For Foreign Invested Enterprises | China Unlocked

The adoption of the Foreign Investment Law of the People’s Republic of China is considered a milestone in the history of the country’s foreign capital management. The law confirms “national treatment” for foreign invested enterprises in China while further broadening market access and improving the business environment.

Expectedly, it has drawn close attention from not only foreign invested enterprises in China but also foreign media. How did they evaluate the law, and what are they expecting from it?

The second factory of Dongfeng Honda Automobile Co., Ltd. in Wuhan, capital of central China’s Hubei Province.

A Clear Signal of Further Opening-up

Miroslava Nykolyshyn, a professional fitness coach from Ukraine, established his own health club in Beijing in May 2018. “I came up with the idea of starting a business in China a long time ago,” he recalls. “Later, I learned that China had formulated many measures to facilitate foreign investors to register companies in the country, including simplified registration procedures and tax reductions.” It took Nykolyshyn only two days to complete the registration procedures. He believes that the adoption of China’s Foreign Investment Law is good news for every foreigner looking to invest in the country. “In the years to come, foreign investors like myself will enjoy more preferential policies as well as a more flexible, favorable business environment,” he adds. “I believe my company will definitely embrace a brighter future.”

Katja Drinhausen, a research fellow at the Mercator Institute for China Studies, noted that the law sent a clear signal to the international community that Beijing is taking action to further open its market. She believes that the law will essentially expand market access and enhance equal treatment for domestic and foreign-invested enterprises, rather than just serving as a symbolic act.

Mats Harborn, president of the European Union Chamber of Commerce in China, spoke highly of the practice of replacing the previous three laws concerning foreign investment in China (Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Law of the People’s Republic of China on Foreign-Capital Enterprises, and Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures) with the unified Foreign Investment Law. He expects it to eradicate some problems plaguing foreign-invested enterprises, systematically improve China’s business environment, shorten the negative list for foreign investment and open more areas to foreign investors. Harborn also hopes that detailed provisions and binding force of this law will be further enhanced.

Roman Wojdyla, CEO of Home Credit China, a subsidiary of the Czech-based consumer finance company Credit Home Group, illustrates that China is opening its door wider and wider, enabling foreign investors to enjoy opportunities brought by its fast development. In the recent decade, Home Credit has witnessed the gradual maturity and expansion of China’s consumer finance market. Through a series of adjustments, China has constantly loosened restrictions on foreign investment, especially thresholds for market access and limits on foreign investors’ shareholding percentages in certain industries, thus enabling foreign investors to expand business. Moreover, China’s legal environment has become fairer and more standardized and transparent, providing more convenient and reliable conditions for foreign investment. In a nutshell, a further opening China is a great attraction to foreign investors.

France-based Nouvelles d’Europe notes that both developed and developing countries are striving to enhance their attraction for foreign investment, resulting in fierce competition. The time is right for China to formulate the Foreign Investment Law. Myanmar’s newspaper Daily Eleven reported that the Foreign Investment Law is expected to become the most important law for China’s opening up since its accession into the World Trade Organization. A report broadcast by The Voice of Vietnam noted that “China is safeguarding its high standard opening-up and promoting high-quality economic development by law.”

Strengthening Protections for Foreign Investors

The Foreign Investment Law has a specific chapter on an investment promotion and protection system, which clarifies stipulations on repatriation of profits, intellectual property rights protection, bans on forced technology transfer, and commitment fulfillment of local governments. The law strengthens the protection of the legitimate rights and interests of foreign investors, which has triggered wide attention.

Kim Bong-in, deputy general manager of the Production Department of Beijing Hyundai Motor Co., Ltd., has worked in China since 2013. Over the past few years, he has realized the importance of China’s automobile market. Hyundai’s Beijing plant boasts well-equipped infrastructure and production facilities, and the massive Chinese market provides ample opportunities, creating huge development space and offering promising prospects for the South Korean automaker. Kim believes that the Foreign Investment Law clarifies issues such as intellectual property right protection and technology transfer and strengthens the protection of foreign investors’ legitimate rights and interests. Moreover, the law confirms the management model of pre-establishment national treatment plus a negative list for foreign investment. That means China will expand the scope of market access for foreign investors. A series of changes arising from the law will create a more attractive business environment for foreign investors including those from South Korea.

Hirohide Yamaguchi, former deputy governor of the Bank of Japan, believes that the formulation and adoption of the Foreign Investment Law will further guarantee the legitimate rights and interests of foreign investors so they will feel more secure when investing in China. He admitted that many Japanese investors worry whether their intellectual property rights can be properly protected in China. “I believe strict protection of the rights and interests of foreign-invested enterprises will definitely become a new factor boosting Japanese investment in China.”

AGC Group is a Japanese enterprise with a history of more than 110 years. It entered the Chinese market as early as 1925. In 2008, AGC expanded its investment in China to explore the Chinese market from all fronts. Toshihiro Ueda, chief representative of AGC Group in China, has high expectations for the Foreign Investment Law. He believes that this institutional guarantee will make foreign investors more confident in introducing cutting-edge technologies to China. He also noted that the demands of Chinese consumers are upgrading fast alongside the country’s rapid economic development, so Japanese enterprises can no longer just introduce their basic technologies to China, and more importantly, they need to enhance their localization and technological R&D capacity. This requires China to increase legal protection of intellectual property rights of foreign-invested enterprises.

The Nikkei pointed out that China’s Foreign Investment Law will strengthen the protection of foreign investors’ legitimate rights and interests, including intellectual property rights, and that it stipulates the government shall not force foreign-invested enterprises to transfer their technologies by administrative means in order to optimize the business environment. Vietnam News Agency reported that the law will enable foreign investors to enjoy equal national treatment as domestic investors in almost all areas except for those on the negative list. These measures will make China’s investment environment more favorable and transparent.

China Still Attractive to Foreign Investment

Since the 18th National Congress of the Communist Party of China in 2012, the Chinese government has implemented a series of reforms to cut taxes and fees, streamline administration and optimize services, considerably improving the country’s business environment. According to the “Ease of Doing Business” report released by the World Bank in 2018, China’s ranking in the world rose from 78th to 46th. Despite an overall drop in foreign direct investment worldwide, the total amount of foreign capital attracted by China reached a record high last year.

This year, China passed the Foreign Investment Law, which is expected to further improve the ease of doing business and create a market environment in which domestic and foreign enterprises are treated equally and compete fairly. The newly adopted law will attract more foreign investments into China. Alongside the “hardware”—a massive market of nearly 1.4 billion consumers, China also boasts the “software” — an increasingly improved business environment, which will enable the country to remain attractive to foreign investment from around the world.

Toshihiro Ueda still remembers the obstacles AGC once had to navigate in China due to contrasting policies of different regions. The Foreign Investment Law will greatly reduce market risk and uncertainty and help manufacturing enterprises like AGC provide better products. Moreover, it is likely to encourage foreign investors to adopt more positive business strategies in the Chinese market such as prioritizing investment in China and increasing the proportion of their businesses in China.

Nick Coyle, CEO and executive director of AustCham China, believes that the improvement in China’s business environment will increase Australia’s investment in China. The signing of the China-Australia free trade agreement in 2015 stimulated a surge of Australia’s investment in China, and the adoption of the Foreign Investment Law will inject greater momentum into the trend. This new law will facilitate foreign investors to address trade disputes more effectively and enhance the equality of legal status between domestic and foreign enterprises in China.

Hisham AbuBakr Metwally, chief economist at the Egyptian Ministry of Foreign Trade and Industry, hopes China will open more realms to foreign investment and allow foreign investors to play a greater role in its economic system.

How the Foreign Investment Law will be refined and implemented has also drawn wide attention. Ali Farmandeh, chairman of China Sweden Business Council, stressed that adoption of the law and its implementation are two different things: its adoption, of course, has some influence, but its implementation is more important.

An article published on the website of Singapore-based Lianhe Zaobao pointed out that the Foreign Investment Law is more than just a law, and the government must map out a series of supportive measures and transform its functionality to facilitate full implementation. From this perspective, not only foreign investors but also other kinds of market entities and even all of society will benefit from the law.

Copyedited by Tian Yuerong

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