On 1 January 2020, the <Foreign Investment Law of the People’s Republic of China> (hereinafter “FIL”) came into effect officially. Together with the <Implementation Regulations on the Foreign Investment Law of the People’s Republic of China>, the <Notice of the State Administration of Market Regulation on Implementation of the Foreign Investment Law for Proper Handling of Foreign Investment Enterprise Registration>, <Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of the Foreign Investment Law of the People’s Republic of China> and the <Measures on Reporting of Foreign Investment Information> etc., it has formed a new system for the management of foreign direct investment in China.
Meanwhile, just a couple of months before the official implementation of the FIL, legislation in related fields was quite active. Around the FIL, several governmental departments published a series of regulations related to foreign direct investment, which jointly built an open, upgraded foreign investment management system, such as improving the overall business environment, foreign exchange, intellectual property rights, dispute resolution etc.
The highlights of the new policies are as follows:
I. Market access
Presently, China is implementing a “pre-access national treatment” plus “negative list” management model in foreign investment market access, which means, foreign investors shall enjoy investment treatment no less than that of domestic investors for market access. Foreign investment in fields which are prohibited according to the negative lists is not allowed. Foreign investment in restricted fields are allowed, as long as certain requirements for equity percentages and nationalities of the senior management are met. For fields outside the negative list, foreign direct investment may participate in the same way as domestic investors.
Negative lists are widely used in managing foreign investment access internationally. Starting from 1 December 2015, the Chinese government has piloted a negative list system for market access in some areas, and has officially implemented a nation-wide negative list system for market access from 2018.
II. Simplifying the procedures for company incorporation
According to the <Notice of the State Administration of Market Regulation on Implementation of the Foreign Investment Law for Proper Handling of Foreign Investment Enterprise Registration>, the registration authority shall only conduct a formal examination of the relevant application materials. When the company is incorporated and/or needs to change any registered information later, the company shall enter the information through the online enterprise registration system and the national enterprise credit information publicity system, and the above-mentioned information shall be forwarded by the registration authority to the commerce authority, which shall hold the foreign investment information through the foreign investment information reporting system.
According to the <Regulation on the Optimization of Business Environment> promulgated by the State Council on 22. October 2019, China is implementing the reform called a “separation of permission from license” which means that permission for engaging in certain businesses shall not be used as a precondition for the registration of a company, except in specific fields prescribed by laws and regulations.
III. Foreign exchange management
According to <The opinions of the State Council on further making good use of foreign capital>, foreign-invested enterprises are encouraged to use their capital for domestic equity investment in accordance with the law.
<The Notice of the State Administration of Foreign Exchange on further promoting the facilitation of cross-border trade and investment> promulgated on 25 October 2019, also stipulates that “non-investment type of foreign-invested enterprises are allowed to invest in domestic equity with capital in accordance with the law, as long as the projects are credible，legal and do not violate the existing negative list.
IV. Intellectual property protection
<Opinions on Strengthening the Protection of Intellectual Property Rights> promulgated on 24 November 2019, provides for “accelerating the introduction of a punitive compensation system of infringement in the fields of patents and copyrights.” “The maximum statutory compensation for infringement shall be substantially increased, thus the intensity of damages increased. “
The Trademark Law amended on 23 April 2019 introduced a punitive compensation system. For example, if the malicious infringement of the right to exclusive use of trademarks is serious, the amount of compensation shall be increased to 1 to 5 times of the actual loss as opposed to just 1 to 3 times of the actual loss under the old law. In case the loss of the right holder, the income obtained by the infringer or the trademark license fee is difficult to calculate, the ceiling for the amount of compensation could be increased from the original 3 million yuan to 5 million yuan
In December 2018, the《Patent Law Amendment (Draft)》 also provides a punitive compensation system similar to the《Trademark Law》, for example, if the intentional infringement of patent rights is serious, the amount of compensation could be 1 to 5 times of the actual loss. In case the loss of the right holder, the income obtained by the infringer or the patent license fee is difficult to calculate, the court shall determine the amount of compensation according to the specific circumstances of the case. The ceiling for the amount of compensation could be increased from the original 1 million yuan to 5 million yuan.
Obviously, the above-mentioned provisions are not only applicable to foreign direct investment, but the increase in penalties for intellectual property infringements will undoubtedly help to further improve the foreign investment environment.
