Implementation Regulation on Foreign Investment Law of the PRC was officially promulgated on December 31, 2019, to be effective from January 1, 2020. Let’s see what we got here:
A. Main content
The regulation stresses the principles of promoting and protecting foreign investments in China.
1. Equal treatment of investors no matter whether they are Chinese or foreign.
a) Equal application of technical standards with regards to all parties and equal participation in government procurement for all entities.
b) Strengthening of openness and transparency of foreign investment policies. The formulation of related documents involving foreign investment shall be subject to a review of legality.
2. Investment protection
a) No more restrictions on funds remitted into or out of China in accordance with the law, such as capital contributions, profit repatriations etc.
b) Strengthening of the protection of intellectual property rights of foreign investors.
c) Local governments shall abide by the policy commitments. “policy commitments” refers to the written commitments made by local governments, within their statutory authority, on the support policies, preferential treatment and facilities applicable to foreign investors. Local governments may not breach their contracts on the grounds of administrative adjustment, change of government, adjustment of institutions or functions, and replacement of relevant administrative personnel being in charge etc.
In fact, many of the above measures have already been stipulated in the Government’s Regulations on the Optimization of the Business Environment published on 22 October 2019.
B. The following issues have been further clarified
(2) The “foreign investors” specified in the Foreign Investment Law also include investors from Hong Kong, Macao and Taiwan
(3) In a particular section, the Regulation stipulates the liability of government agencies and their staff for violating the law, and to extend liability to “the government and relevant departments and their staff”.
C. Still unsolved issues
1. The foreign investment safety review system still needs to be refined in terms of matters being subject of review, the examination criteria, the examination procedures and last but not least the time limit etc2. The new Foreign Investment Law provides that “foreign investment” includes investment activities indirectly carried out by foreign investors in China, however it does not specify whether the VIE （variable interest entity）structure is covered by the new law or not, nor does this regulation.As a matter of fact, the legitimacy of the VIE structure is related to the fate of many red-chip structure enterprises, its legal characterization and how to deal with the structure gives rise to a lot of attention by investors. It seems that investors may need to wait for the lawmaker to come up with separate provisions to clarify this.
Useful link:
State Administration for Market Regulation
