At a time when the world faces rising protectionism and economic downturn, the launch of China's Foreign Investment Law has shed light on the country's perennial promise to foreign investors, providing them a larger share of the world's largest market on an equal footing with their Chinese counterparts.
Passed by the country's top legislature in early 2019, the new law, which is a comprehensive and fundamental set of legal standards for foreign investment activities, took effect on the first day of 2020. With unified provisions for the entry, promotion, protection and management of foreign investment, the law is a milestone that addresses international concerns and enhances the sense of gain for foreign firms.
Ensuring stable foreign investment has been a key task of China's six-plank campaign to counter downward economic pressure, as the country now ranks the world's second when it comes to foreign direct investment (FDI). According to China's Ministry of Commerce, a total of 36,747 new foreign-funded enterprises were established from January to November in 2019, while FDI into the Chinese mainland expanded six percent year-on-year to 845.9 billion yuan.
The new law has replaced Chinese-foreign equity joint ventures, wholly foreign-owned enterprises and Chinese-foreign contractual joint ventures passed between 1979 and 1990, as they could not address the emerging challenges regarding foreign investment, including intellectual property and negative lists.
"The Chinese government has made great efforts to improve the business environment for foreign companies. Technology transfer and foreign investment will increase in China in the future if the law's implementation reaches expectations," said Ulla Nurmenniemi, Executive Director of Finnish Business Council in Beijing.
Boosted confidence in Chinese market
Ulla has been doing business in China for the past few decades. [Photo by Ulla Nurmenniemi]
Having been doing business in China since the late 1990s, Ulla has witnessed the improvement of China's business environment, spanning decades. She noted that doing business in China is much more convenient for foreigners than it once was, when it was considered "another world."
"Back in the 90s, some Finnish companies had to withdraw their business out of China due to intellectual infringement. Many Finnish companies decided to look for local distributors or partners to manufacture parts of their products, rather than set up their companies in China," said Ulla.
Such concerns were the major obstacles that dampened foreign investor's enthusiasm to bring business to China, even though China's IP regime has made significant strides in just a few decades.
However, the situation has changed following the launch of the new law, which stipulates that administrative agencies and their staff shall not use administrative means to force the transfer of technology and shall keep the business secrets of foreign investors confidential. At the same time, intellectual infringements shall be dealt with lawfully and punished severely.
"As one of the most innovative countries in the world, technologies and innovation, rather than simple capital, are Finnish companies' major investment. The new law, if implemented well, would safeguard our core technologies, making it even safer to do business in China," said Ulla.
Kobus Van Der Wath believes that the new investment law will bring more opportunities to foreign investors. [Photo by He Zhuoyan]
Echoing Ulla, Kobus Van Der Wath, CEO of Axis Group International, a South African company that provides professional services including procurement and international sales activation, believed that the new law had given foreign investors confidence in doing business in China.
"I think the new law sends a strong signal that intellectual property is crucial and will receive more attention and protection [from the Chinese government]. We're now expanding our business in China, and the law will help us incorporate new entities in China," said Wath.
In addition to intellectual protection, various provisions on the national treatment of foreign investors have also interested business leaders worldwide. According to the new law, the state shall implement a foreign investment management system addressing pre-entry national treatment to include a foreign investment negative list, ensuring that investment standards given to foreign investors at the stage of entry are not lower than that of domestic investors and their investments.
Tingwei Guan-Alapiha, head of government relations of Stora Enso, a Finnish company that runs forest plantation and a packaging board mill in China, said that the new law has granted foreign investors an equal footing with their Chinese counterparts, an unprecedented move that will boost fair and healthy business competition.