Evolution and Prospects of the Foreign Investment Law of the People’s Republic of China

On January 1, 2020, the Foreign Investment Law of the People’s Republic of China came into force. It is the first comprehensive body of law governing the main aspects of foreign investment in the Chinese economy. The new legal regime for foreign investment has been formed taking into account the changes and real needs of the economy, both international and domestic. With its adoption, a unified legal regime for foreign investment was established, and the legal gaps that existed in the previous legislation were filled. First of all, the state unified the organizational legal forms of companies with foreign investments. Innovation was also shown in the management scheme at the pre-investment stage, at this stage a so-called negative list is created for foreign investment. It includes sectors of the economy in which foreign investment is prohibited or restricted. In other economic areas, foreign investments are allowed without restrictions. Unlike the previous period, the Law of the People’s Republic of China on Foreign Investment establishes the principle of national treatment for foreign-invested companies. By this, they are equalized in rights and obligations with legal entities using exclusively Chinese capital; the legal statuses of foreign and Chinese investors are also declared identical. These features are designed to more actively support foreign investment and protect the rights and legitimate interests of foreign investors, but taking into account the interests of Chinese investors. In addition to the Law, there is a “Regulation on the Application of the Foreign Investment Law of the People’s Republic of China”. It clarifies key concepts and basic regimes under the provisions of the Law of the People’s Republic of China on Foreign Investment, strengthens incentive measures and ways to protect the rights of investors, as well as the corresponding legal responsibility. In the future, it is necessary to more clearly define the legal issues that are not set out in the Law of the People’s Republic of China on Foreign Investment, including clarifying some legal concepts, adjusting procedures more clearly, and improving the security inspection system.