On 15 March 2019, the National People’s Congress of the People’s Republic of China (“PRC” or “China”) approved the PRC Foreign Investment Law (“FIL”). Once it goes into effect on 1 January 2020, it will reshape the regulatory regime that has governed foreign investment in China for decades and form the new fundamental basis for the foreign investment legal framework in China. In this client alert, we summarise the highlights of the FIL as well as the potential implications for foreign investors.
The first draft of the FIL, issued by the Ministry of Commerce on 19 January 2015 (“2015 Draft”), was quite detailed and comprehensive. It attempted to unify the current fragmented laws governing foreign investment in China but was shelved when it caused tremendous controversy. After almost four years, legislative progress picked up remarkably when a new draft was released for public comments on 26 December 2018 (“2018 Draft”). Within the next three months, during which there were several rounds of discussion and modifications, the NPC had approved the final version. This fast-track law-making process for the FIL shows China’s efforts to ease concerns about its investment environment and, perhaps, smooth negotiations with the United States on trade.
According to the explanation accompanying the FIL, which outlines the background and principles for drafting the FIL, the FIL aims to further open the Chinese market to foreign investors and create a more stable, transparent, predictable and fair investment environment for them.
Compared with the 2015 Draft, the FIL adopts a more simplified legislative approach, setting aside issues that remain controversial and extensively reducing the length, from 170 articles and 11 chapters to just 42 articles and six chapters, promulgating only the principles and basic rules for regulating foreign investment.
The Foreign Investment Law will reshape the regulatory regime that has governed foreign investment in China for decades.
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