The most populous country in the world and the leading economic power in terms of GDP is, for its own reasons, an attractive scenario for companies seeking to do business abroad. However, and although it has improved in recent years, the People’s Republic of China occupied, in 2019, the 46th place in the Doing Business ranking. With the entry of the new decade, to continue this line, China has approved a new policy to regulate in an integrated way the foreign investments, replacing several existing laws with effect from 1 January 2020.
In fact, this new Foreign Investment Law aims to produce a much more integrated framework on this important subject. It therefore replaces a number of existing and less coordinated rules: the PRC Law on Sino-foreign Equity Joint Ventures, the PRC Law on Wholly Foreign-owned Enterprise and the PRC Law on Sino-foreign Cooperative Joint Ventures,
These are some of the main advantages.
Intellectual Property (IP) protection
A traditional concern of foreign investors in China has been IP protection. This is to say, to what extent their IP rights will be secured and protected. The new regulation brings some certainty, as it mentions expressly that IP transfer cannot be forced by the Government administrative procedure.
Application of integrated treatment on the market entrance
The new rule stands that foreign investment in China will get pre-national treatment, which means the national treatment, in all aspects, will be given equally to the foreign investment, in general terms.
However, this will not apply if investment would fall into the Negative List issued by the State Council of China.
Simplification in the registration process
Prior methods, that required previous approval by the Ministry of Commerce and registration with the Administration of Industry and Commerce before a foreign investment could be permitted into China, are now simplified.
Furthermore, the investment Quota limitations of QFII and RQFII had been removed. Previously, China’s government always had strict rules on how foreign investors work in China’s capital market.
Those rules were established in 2002 and 2011, for qualified foreign investors only to open the capital and stock account. Within the quota limitation, both could invest in China’s capital market.
Quotes limitations are no longer coping with the new trends in the China capital market. Neither do they benefit bonds and stock investors in various channels. Figures showed that less of 2% A-share stock value was being hold within them.
All in all, the new regulation will provide better tools and framework for foreign investors in China, giving them more flexibility and adding transparency, helping the financing of their operations there.