Beijing unveils draft of foreign investment law
China has begun public consultation on the law which will replace and update three existing laws which are seen as being out of date and also in conflict with other rules.
China began a public consultation on the draft of a foreign investment law on Jan. 19, which marked a step toward reforming existing laws governing the area, reports Shanghai’s China Business News.
Ministry of Commerce spokesman Sun Jiwen disclosed that a new law is needed because the three existing laws no longer meet the needs of an open economy and in fact hinder the development of a vibrant market and the transformation of the government’s role.
A new law will also solve the problem of some provisions of the existing laws conflicting with other corporate laws and will include more comprehensive rules regarding foreign companies acquiring Chinese businesses, Sun added.
Hannah Cao, a senior executive at Steptoe & Johnson LLP’s Beijing office, said that the consolidation of three laws into one statute represents a landmark change, and this will establish uniform rules regarding foreign investments in China.
She also highlighted the key changes included under the draft law, which are the introduction of a negative list management to replace the current case-by-case regulatory review as well as the establishment of a national security review.
However, sources close to the decision makers are not positive that the draft law, which took the ministry more than three years to complete, will be passed swiftly, and they do not expect it to be passed during the annual gathering of the National People’s Congress in March.
Tu Xinquan, deputy director of the China Institute for WTO Studies at University of International Business and Economics in Beijing, said that the recent progress on a new foreign investment law is likely a result of China’s ongoing talks with the United States regarding the Bilateral Investment Treaty (BIT).
The definitions used in the draft law may be in line with the context currently agreed on by both countries, Tu said.
Since the draft law will be reviewed by other ministries, a process that can take up to five years, Tu said that the pace of the legislative procedure is expected to be decided by the progress of the BIT talks and the determination of Chinese leaders to push for reforms.
Meanwhile, Tu said that the draft law includes a mechanism to handle investment disputes, which does not exist under current laws.
Another provision in the draft law that caught the public’s attentions is the rule on the legal structure of the variable interest entity, which will be seen by China as a form of foreign investment, the report added.