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BarJournal INTERNATIONAL LAW

JULY/AUGUST 2015
feAtUre china is entering a new era

for foreign investments

China’s New Foreign Investment Law and Its

Implications on Foreign Investors

BY YAO LIu

n March 15, 2019, and economic changes, which have made China which only retains two categories of industries:
China passed its highly- the world’s second largest economy. When the the “prohibited category” in which foreign
anticipated Foreign FIL comes into effect on January 1, 2020, all the investment is completely prohibited (Art.28
Investment Law, which three existing foreign investment statutes will of FIL) and the “restricted category” in which
o will rewrite the broad be repealed (Art.42 of FIL). foreign investment will be subject to certain
framework governing foreign investments restrictions (Art.30 of FIL). Actually, the
in China, effective as of January 1, 2020 Promoting Foreign Investments Negative List approach has been implemented
(hereinafter referred to as “FIL”). The FIL The FIL aims to relax restrictions on FIEs’ since 2013 in Shanghai Free Trade Zone and
passed amid the China-U.S. trade negotiations market access by replacing the Catalogue the other ten free trade zones in China,
and contains direct responses to key issues approach with Negative List approach (Art.4 of removing a number of restrictions on foreign
including market access and forced technology FIL). China’s early regulatory system subjected investors’ access to China. The FIE will expand
transfer. Even though being criticized by many FIEs and domestic entities into different the Negative List approach from free trade
for being vague and general (the FIL includes regulations. A FIE was not granted access to zones throughout China. The Negative List
six chapters with a total of 42 articles, leaving China’s market until all relevant government approach will lift regulatory hurdles for FIEs
many details to be for which foreign
addressed in other China is entering a new era for investment approval
regulations and would no longer be
implementation foreign investments by relaxing necessary. Even if a
procedures), the FIL FIE needs to obtain
reiterates China’s certain operating
determination to regulatory control on foreign permits to enter
further open its into a restricted
door to the world investment and offering equal industry, it will be
by promoting and treated with the
protecting foreign treatments to foreign investors. same requirements
investments. This applicable for a
article will discuss domestic entity
some highlights of the new law and FIL’s authorities approved and issued a business applying for such permits (Art.30 of FIL).
implications on foreign investments in China. license to the FIE. The FIE was limited to carry The final Negative List will be issued by the
out solely the scope of business set forth in State Council.
Background its business license. FIEs’ market access and The FIL is designed to level the playing
For the past four decades since China their business scope (or change of business field between foreign and domestic firms by
implemented its Reform and Opening-up policy, scope) are regulated by the Catalogue for the providing FIEs with “Pre-establishment National
foreign invested enterprises (“FIEs”) in China Industrial Guidance of Foreign Investments, Treatment” from the investment access stage. In
have been mainly governed by three separate issued jointly by the National Development other words, subject to the Negative List, foreign
statutes: the Sino-Foreign Equity Joint Venture and Reform Commission and Commerce investments will be treated no less favorably than
Enterprise Law, the Sino-Foreign Cooperative Ministry (“Catalogue”). The Catalogue divides domestic investments through the establishment,
Joint Venture Enterprise Law, and the Wholly all industries into four categories: encouraged, acquisition, and expansion stages of FIEs (Art.4 of
Foreign-Owned Enterprise Law. All three statutes permitted, restricted and prohibited. Starting FIL). National Treatment provisions under the FIL
were initially promulgated during the 1980s and from 2020, the FIL will replace the Catalogue include, without limitation, (i) FIEs are entitled to
need to be updated in light of substantial social approach with the Negative List approach the same business/industry development policies
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