The new PRC Draft Foreign Investment Law

The new PRC Draft Foreign Investment Law

Published on January 30, 2019

The NPC Standing Committee (NPCSC) published on 26 December 2018 a new Draft Foreign Investment Law (hereinafter referred to as “FIL”) for public comments, which may be submitted within February 24th, 2019.

The new draft law follows a previous version published in 2015, with which it shares the aim to further develop the opening-up of China towards international markets and to promote foreign direct investments by overcoming the current fragmentation of the legal framework in that field, through the formal repeal of (1) the PRC Chinese-Foreign Equity Joint Ventures Law; (2) the PRC Wholly Foreign-Owned Enterprises Law; (3) the PRC Chinese-Foreign Contractual Joint Ventures Law.

Several modifications have been introduced to the original text during the preliminary stages. The text published last December includes 39 articles, while the previous version of the 2015 legislation was considerably more articulated. Given the broad scope of the law, once the new version of the FIL has entered into force, it will unite the disciplines on foreign investment, replacing the 3 special laws and becoming the fundamental law in the area. The final text will be approved presumably within the next few months and the law will more likely come into force by the end of the year.

However, the “national treatment” principle is not fully implemented as it suffers the limitations and exceptions outlined in the previous FIL. In particular, as foreseen by art. 27, such a principle only applies to the investment fields not mentioned in the negative list.

The negative list, to be published by the State Council, foresees both fields in which foreign investments are prohibited (Prohibited investments, art. 27 paragraph 1), and in which foreign investments are subject to particular requirements therein outlined with respect to the specific business field (Restricted investments, art. 27 paragraph 2). Such requirements, in particular, may relate to a certain maximum company share of the foreign party or impose some limits on the corporate structure of a company. Where the international treaties to which China is party provide otherwise, such treaties shall therefore apply (art. 4).

As for the investment approval stage, the FIL states that “the approval and recording of foreign-invested projects are to follow the relevant State provisions” (art. 28). It is uncertain, however, whether the specific procedures for filing, examination, and approval which currently apply to any foreign investment in China will also be abolished by the State Council, so that the same rules for registration of a company would apply, regardless of whether the investor is foreign or Chinese, additionally, an even more restrictive negative list it is expected to be published by the end of the year.

With respect to the investment implementation, the FIL greatly reduces governmental control as the 2015 Draft foresaw stringent reporting requirements, as it imposed to the investor the transmission of a detailed investment information report within 30 days after the implementation date for the investment, and then, periodically, on an annual or quarterly basis, depending on the annual income of the company.

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