The many dynasties of foreign investment in China

Since 1978, China has officially pursued a policy of “reform and opening up” in an effort to attract foreign investment. Since then, the resulting reforms have gradually liberalized the country’s controls on foreign investment. Between 1983 and 2020, foreign investment increased by a factor of nearly 1,000, from $1.77 billion to $1.36 trillion.

China’s first foreign investment took place in 1980, in the form of joint ventures of Chinese and foreign capital, after the promulgation of the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures (EJV) in July, 1979 Subsequently, the Law of the People’s Republic of China on Wholly Foreign-Owned Enterprises (WFOE) was promulgated in 1986 and the Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures (CJV) in 1988 (together “The Three Laws”). These have played an important role in foreign investment for a long time, but in 2020 the new Foreign Investment Law (FIL) and the Regulation on the Implementation of the Foreign Investment Law came into force and the three previous laws were abolished.

With the aim of actively promoting foreign investment, the new controls significantly expand foreign investment protection, remove some foreign ownership restrictions and ease regulatory requirements for foreign investors in China.

During the Three Laws period, foreign investors had to follow specific requirements in the Three Laws instead of Chinese company law. Foreign investors could not freely negotiate with their Chinese partners on how to govern and operate the company like any domestic company.

Furthermore, prior to 2016, foreign investors had to strictly follow some of the government’s established market access control measures. These measures were implemented through the Ministry of Commerce Catalog of Foreign Investment Industrial Guidance (“MOFCOM Catalog”), which contained a list of domestic industries in which foreign investment may be strictly limited or prohibited. The MOFCOM Catalog framework subjected any foreign investment to extensive government review and approval processes, including antitrust and national security reviews, regardless of the applicable industry. If approved, their business activities were strictly limited to the scope of their business licenses. In 2016, the MOFCOM Catalog was replaced by the Special Administrative Measures for Access to Foreign Investment (Negative List), which removed universal review and approval processes. Under the Negative List framework, foreign investors are afforded the same market access as domestic entities, unless the particular industry is restricted or prohibited for reasons of national security or public welfare. The Negative List has been gradually and significantly shortened and China continues to expand the market open to investors.

Since the beginning of 2020, in order to effectively respond to the COVID pandemic and stabilize the foundations of foreign trade and investment, China has introduced a series of policies to rescue enterprises facing difficulties and provide extraordinary support to market subjects of all types, including enterprises. with foreign investments, as they resume work. China, as a leader in the prevention and effective control of the pandemic around the world, has also been a leader in resuming production and restoring normality.

From the development of foreign investment in China since “opening up”, we can see that after several dynasties of foreign investment, their restrictions have been reduced, procedures have been eased and markets have expanded.

Therefore, China has become and remains one of the most attractive destinations for foreign investors worldwide.

DENIAL This article is intended for informational purposes only and does not constitute legal advice. Although the information in this article has been obtained from reliable, official sources, no guarantee is given as to its accuracy or completeness. For more information, please visit dandreapartners.com or WeChat: dandreapartners

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