China’s Draft Foreign Investment Law: Good News for FDI

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Op/Ed By Chris Devonshire-Ellis

China’s new draft Foreign Investment Law has recently been published and is available for public inspection and comments.

In essence, the new draft indicates the government’s willingness to further open up its markets to foreign businesses and address complaints that have been prevalent among foreign investors.

It is significant that it has been released while China and the US have been engaged in a serious trade dispute and can be expected to alleviate some of the outstanding issues.

China’s new draft Foreign Investment Law

Key points from the draft Foreign Investment Law include:

  • Government officials are prohibited from using administrative means to force foreign businesses to transfer their technology;
  • Foreign investors enjoy equal treatment and market access with domestic counterparts in China, except in excluded sectors specified in the government’s negative list; and
  • China reserves the right to retaliate against countries that discriminate against Chinese investment with “corresponding measures”.

An English-language translation of the draft Foreign Investment Law can be accessed here.

China’s draft Patent Law

The draft Patent Law similarly addresses priority issues for foreign businesses regarding intellectual property rights protection, a notable area of concern highlighted in several recent white papers submitted by the American, European, and British chambers of commerce.

Key points from the draft Patent Law include:

  • Higher penalties for patent infringement;
  • The term of patents extended to 15 years, up from 10 years currently; and
  • Clarifying a shift of the burden of proof to the defendant under a duty to cooperate in providing relevant information.

An English-language summary of the draft Patent Law can be found here.

Both drafts loosen up the current situation regarding the Chinese government’s attitude towards foreign investment coming into the country.

The draft and comments on it will be examined by the Chinese government in the coming months. Please let us know if you have comments to make; we can direct you to the most suitable vehicle for doing so.

Other concessions to ease foreign investment restrictions

The new draft Foreign Investment Law is not the only concession China is making to ease foreign investment restrictions. It has recently relaxed regulations in its bonded zones and will permit domestic sales from such zones into the local market.

China has also cut tariffs for a large number of products, effective from the beginning of this year. Additionally, the new 2019 Negative List, which despite its name actually clarifies industrial sectors of China open to foreign investors, has also been released and has further expanded areas open to foreign investment.

Finally, as concerns the US-China trade war, our understanding is that it is likely the United States and China will reach an agreement. That, coupled with the easing of FDI rules and regulations in China, should ease the current question marks over the long-term viability of China-based export manufacturing firms, and buy them some time to adapt to alternative supply chains.

For a summary of longer-term alternatives to China-based production, please click here.


About Us

China Briefing is produced by Dezan Shira & Associates. The firm assists foreign investors throughout Asia from offices across the world, including in DalianBeijingShanghaiGuangzhouShenzhen, and Hong Kong. Readers may write china@dezshira.com for more support on doing business in China.

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