China's new foreign investment law seen as too general, hasty

March 21, 2019 09:00
China's revised foreign investment law will better protect the legitimate rights and interests of foreign businesses, Premier Li Keqiang claimed. Photo: Bloomberg

The National People’s Congress, China's parliament, last week passed a new Foreign Investment Law (FIL). Premier Li Keqiang said on Friday that the new law "will better protect the legitimate rights and interests of foreign investors.” 

“We will continue to shorten our negative list, which defines areas in which foreign enterprises are not allowed to invest, making the country’s investment policy more predictable,” Li said.

The law states that the government and officials are not allowed to force foreign investors to transfer their technologies. It also stipulates strict protection of their intellectual property rights. These address two of the main demands of the US in its trade dispute with China.

Foreign business gave a mixed response to the law. In a statement, the European Union Chamber of Commerce in China said the FIL plays "an important role in formalizing the legal foundation for the shift from the old foreign investment catalogue to the new market access system based on a negative list, which is hoped will provide increased certainty for European businesses.”

“More than anything else, foreign companies want equal treatment and opportunities,” said Mats Harborn, the president of the Chamber. “We will closely monitor the FIL’s implementation to ensure that it is fully respected at all levels of the government and in all corners of this country.”

The statement said the Chamber was concerned that Article 40 had been kept in the final draft. “This allows for political issues to influence investor-state relations and gives China power to take unilateral action against trading and investment partners based on a principle of perceived negative reciprocity. Its vague wording further adds to the legal uncertainty that the law creates for foreign companies.”

One foreign businessman and long-term resident of Beijing said: “The new law will not help. It is too hazy and general and leaves the authorities a lot of space to meddle, especially in the name of security.”

In a statement, the American Chamber of Commerce in China said that, in principle, it welcomes and appreciates the legislative effort to improve the foreign investment climate.

“We are concerned, however, that such an important and potentially far-reaching piece of legislation will be enacted without extensive consultation and input from industry stakeholders, including foreign-invested enterprises (FIEs).

“Despite some revisions, the provisions … are general and do not address a number of the persistent concerns of foreign companies or FIEs in China, including the potential for unequal treatment of domestic and foreign businesses, the broad scope of ‘National Security Reviews’, the opportunity for broad protection to be overridden by industry-specific regulations and the lack of details in many of the draft Articles,” it said.

The main reason to pass the law during this session of the NPC was political. Beijing wants to persuade Washington to sign a trade agreement as quickly as possible and lift the sanctions it is imposing on Chinese exports.

Originally, President Donald Trump and President Xi Jinping were to meet at the end of this month at Trump’s Mar-a-Lago resort in Florida. But US ambassador to China, Terry Branstad, said the summit had been delayed because the deal was still under discussion.

The biggest obstacle is the enforcement mechanism demanded by US Trade Representative Robert Lighthizer to ensure that Beijing lives up to any promises it gives. The Chinese side is not willing to accept this.

On February 26, AmCham issued its 2019 China Business Climate Survey, based on a survey sent to 771 member companies.

“The overall outlook has shifted from cautious optimism to cautious pessimism, as many longstanding concerns – especially inconsistent regulations and uneven enforcement – persist, even as new challenges – namely bilateral US-China tensions – take center stage. Furthermore, the survey results suggest that the full impact of the tariffs has yet to be felt, with some companies maintaining a ‘wait and see’ attitude,” the survey said.

The members want actions by both governments, said Tim Stratford, chairman of AmCham. “Substantial improvements in market access, intellectual property rights protection, regulatory transparency and even-handed enforcement are all cited by members as critical to their continued success.

“Additionally, members are asking the US government to advocate even more strongly for a level playing field, pursue investment reciprocity and engage in results-oriented discussions between the two sides,” he said.

Only time will tell whether the FIL will address these long-standing issues and whether it will persuade Trump to sign a trade deal.

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A Hong Kong-based writer, teacher and speaker.