During its ongoing annual session, the national legislature is deliberating a draft foreign investment law, which, if adopted when it is put to vote on March 15, will become a fundamental law for foreign investment in China, replacing three existing statutes governing foreign-invested entities.
The draft law has drawn much international attention as it concerns the rights and interests of foreign investors in China and it serves as a litmus test on whether China is making good on its promise to further open up its market and deepen reforms.
An explanatory document on the draft released to the press Friday offers reassurances to foreign investors. The draft contains many stipulations that ensure domestic and foreign enterprises are subject to a unified set of rules and compete on a level playing field, according to the document.
Additionally, government policies supporting enterprises should apply equally to foreign-invested firms, says the document. The draft also says foreign-funded firms can take part in government procurements through fair competition with domestic ones, according to the law.
As for the so-called forced technology transfers accused by the Trump administration, the draft stipulates that government departments and their employees be prohibited from using administrative measures to force technology transfer.
The draft has addressed most, if not all, concerns about fair competition and intellectual property protection in the country. It shows China’s full determination to further reform and opening up as a way of seeking higher-quality growth, rather than as a concession aimed at reaching a truce in the trade war with the United States.
The newly released 2019 China Business Climate Survey, conducted by the American Chamber of Commerce in Beijing, shows the “forced” tech transfers in joint ventures hyped up by the Trump administration are basically a nonissue. Instead, according to the report, complex regulations on foreign businesses are more concerning than IP.
When asked “How significant of an impact would the following changes to the policy environment have on increasing your company’s investment levels in China?” 53 percent of respondents to the survey said transparency, predictability and fairness in the regulatory environment had either “very significant” or “extremely significant” impacts on their decision to invest in China.
These respondents would feel much relieved if they had known the draft foreign investment law sets out clear stipulations to ensure fair play between domestic and foreign-funded ones. Predictability and transparency will be much improved as the draft says sectors not on the entry negative list for foreign investment will be managed in accordance with the principle of equal treatment for domestic and foreign capital.
Additionally, foreign investors’ license applications will be reviewed with the same conditions and procedures as those for domestic investors, unless otherwise stipulated in other laws or administrative regulations, according to the document.
Although the draft has yet to be given the green light by the national legislature, many foreign investors have given their thumbs-up. How Jit Lim, senior director of Alvarez and Marsal Asia, told China Daily, “In the medium to long term, we believe that this should be seen as a significant confidence booster for foreign funds in investing in China.”
The law is expected to be given a go-ahead and efforts will be made to ensure effective enforcement of the law. Those who remain skeptical should look at the flurry of new measures taken by the central authorities in the past months, which has made fair competition between State-owned and private enterprises, and between domestic and foreign firms, one of the country’s priorities in steering the world’s second-largest economy away from the pitfalls that may lead China into a middle-income trap.
(The author is head of the Shenzhen Daily News Desk.)