Free Trade Zones

In Brief: Regulation of Inward Foreign Investment in China

Regulation of inward foreign investment

Government investment promotion programs

Does the State have a foreign investment promotion program?

Since the launch of economic reforms in 1978, China has implemented its “Bring In” strategy, as well as its “Go Global” strategy. The “Bring In” program is a high-level national strategy which is implemented through various national and local policy measures favorable to foreign investors, including tax incentives, liberalized entry conditions in a number of industries, the opening of coastal cities and the creation of special economic zones and free trade zones. Below are three examples.

On August 16, 2017, the State Council issued the Notice on Several Foreign Investment Promotion Measures, containing 22 provisions in five areas, namely reducing restrictions on foreign investment access; stipulation of fiscal policies and fiscal support; improving the overall investment environment of national development zones; facilitating the entry and exit of talent; and optimization of the business environment.

On November 7, 2019, the State Council issued the opinions on furthering the effective use of foreign investment, containing 20 provisions in four areas, namely China‘s further opening up to the outside , stepping up efforts to promote foreign investment, deepening reform on investment facilitation and protecting the legitimate rights and interests of foreign investors.

The judiciary supports foreign investment by trying to provide a modern and convenient judicial environment for foreign investors. For example, on September 25, 2020, the Supreme People’s Court released the Guidance Notices on People’s Court Services and Supporting Greater Openness to the World. The instrument requires courts to accurately apply laws, regulations and judicial interpretations in foreign investment cases, fully implement the “pre-establishment national treatment” management system and of the “negative list”, strictly restrict the invalidation of foreign investment contracts and protect legitimate rights and interests. domestic and foreign investors.

The National Development and Reform Commission and the Ministry of Commerce released the draft of the 2022 version of the catalog of encouraged industries for foreign investment on May 10, 2022. According to the draft, the 2022 version of the catalog may further expand the scope of encouraged industries. .

Applicable national laws

Identify national laws that apply to foreign investors and foreign investments, including any requirements for admission or registration of investments.

The Foreign Investment Law, which came into force on January 1, 2020, replaced the Wholly Foreign-Invested Enterprise Law, the Sino-Foreign Joint Venture Law and the Sino-Foreign Cooperative Joint Venture Law and is positioned as the basis for foreign investment legislation. The Foreign Investment Law should be read in conjunction with:

  • the Measures for the Security Review of Foreign Investments (2020);
  • the Catalog of industries encouraged to foreign investment (2020 edition);
  • provisions relating to the list of unreliable entities (2020);
  • the special administrative measures on access to foreign investment (2021 edition) (the national negative list); for investments in free zones, the special administrative measures of free zones on access to foreign investments (2021 edition) (the negative list of free zones) apply;
  • the Regulations for the Foreign Investment Law (2019); and
  • Interpretations of the Supreme People’s Court on Several Issues Concerning the Application of the Foreign Investment Law (2019).

According to the Foreign Investment Law, the investor must file an application through the Business Registration Online Application Service System for Market Regulation Administration (AMR) review. For an investment involving an industry sector that is not on the negative list, the AMR will approve the registration. For an investment involving an industrial sector appearing on the negative list and which is limited, inter alia, to the maximum percentage of participation of the foreign investor and the nationality of the legal representative, the AMR examines whether the proposed investment complies with the terms. If the conditions are met, the AMR approves the registration. The AMR will not approve the registration of an investment involving an industry sector listed as “prohibited”. At the same time, the investor must provide certain details of the investment using the business registration online application service system and the national business credit information disclosure system, and the AMR must promptly forward this information to the Department of Commerce. By simplifying the registration procedure and facilitating the sharing of information between the Department of Commerce and the AMR, the formality requirements for investors are considerably reduced.

In addition to the above, in accordance with Article 4 of the Foreign Investment Security Review Measures, before a foreign investment is made in any of the following sectors, the foreign investor or relevant party in China must proactively declare the investment to the Operational Mechanism Office of the National Development and Reform Commission as one of the following:

  • investments in sectors affecting national defense and security, such as the arms industry and sectors that supply the arms industry, and investments in locations on the outskirts of military installations or installations of the armaments industry; Where
  • investment in major agricultural products, major energy sources, major resources, major equipment manufacturing, major infrastructure, major transportation services, major cultural products and services, major computer and internet products and services , major financial services, key technologies and other sectors, insofar as the foregoing affects national security and effective control of the beneficiary company is acquired.

It should be noted that under Article 44 of the Foreign Investment Law, Foreign Invested Enterprises (FIEs) which were previously established under the Wholly Foreign Invested Enterprises Law, the Law on Sino-foreign joint ventures and the Sino-foreign Cooperative Joint Ventures Law may, within five years after the entry into force of the Foreign Investment Law, choose to adjust their organizational forms and structures in accordance with the provisions of company law, partnership law and other laws, or to maintain their original organizational forms and structures. The Company Law and the Partnership Law regulate the business activities of all companies and partnerships registered in China. If a matter is not stipulated in the Foreign Investment Law, the investor can refer to the Company Law or the Partnership Law.

Details regarding the registration of FIEs can be found in the Notice on Implementation of the Foreign Investment Law and Efficient Administration of Foreign Investment Business Registration Work issued by the Administration of Foreign Investment. for Market Regulation (2019).

In addition to the above, other developments of note are the enactment of the Data Security Act on June 10, 2021 and the Personal Information Protection Act on August 20, 2022. These laws impose restrictions on the transmission data from China to other countries, especially data. relating to national security and personal information. This can potentially influence foreign investors in terms of transmitting data to their head office or data storage facilities outside of China or having their investment data reviewed by a non-Chinese institution (such as a stock exchange not Chinese). The actual impact remains to be seen.

Competent regulatory body

Identify the state agency that regulates and promotes inward foreign investment.

Key government agencies that regulate and promote inward foreign investment include departments of commerce, market regulation agencies, and development and reform commissions. Departments of Commerce are responsible for approving entry under the negative list and for conducting investment screenings regarding national security. Market regulators review the application documents submitted by potential investors and then forward the relevant information to the relevant commerce department. They also conduct surveys on business concentration. Development and Reform Commissions are involved in capital investments. In addition, most provinces and cities have investment promotion agencies, whose main function is to promote communication and cooperation between Chinese and foreign investors. A list of investment promotion agencies can be found on the Ministry of Commerce’s Investment Promotion Agency website.

Competent Dispute Resolution Body

Identify the state agency that must be served in a dispute with a foreign investor.

No specific national law exists in this respect. The government agency responsible for investor-state insider arbitrations against China is the Department of Treaties and Law of the Ministry of Commerce. In some bilateral investment treaties (BITs), it is expressly stipulated that any notice of dispute must be sent to the Department of Treaties and Law of the Department of Commerce (for example, the China-Canada BIT of 2012). Other BITs expressly provide that any notice of dispute must be sent to the Ministry of Commerce (eg, the 1995 China-Cuba BIT).