The Many Dynasties of Foreign Investment in China

Since 1978, China has officially pursued a policy of “reform and opening” in an effort to attract foreign investment. Since then, the resulting reforms have gradually liberalized controls on foreign investment in the country. Between 1983 and 2020, foreign investment increased by a factor of nearly 1,000, from US$1.77 billion to US$1.36 trillion.

China’s first foreign investment was made in 1980 in the form of Sino-Foreign Equity Joint Ventures, following the promulgation of the Law of the People’s Republic of China on Sino-Foreign Equity Joint Ventures (EJV) in July 1979. Subsequently, the Law of The People’s Republic of China on Wholly Foreign Enterprises (WFOE) was promulgated in 1986 and the Law of the People’s Republic of China on Sino-Foreign Cooperative Joint Ventures (CJV) in 1988 (collectively, the “Three Laws”). They have played an important role in foreign investment for a long time, but in 2020, the new Foreign Investment Law (FDI) and the Regulations for the Implementation of the Foreign Investment Law came into force, and the previous three laws were repealed.

In order to actively promote foreign investment, the new controls greatly expand the protection of foreign investment, remove certain restrictions on foreign ownership, and ease regulatory requirements for foreign investors in China.

During the Three Laws period, foreign investors had to follow specific requirements in the Three Laws rather than the Chinese Company Law. Foreign investors could not freely negotiate with their Chinese cooperators on how to run and manage the company like any local company.

In addition, prior to 2016, foreign investors had to strictly follow some of the government’s measures to control market access. These measures were implemented through the Ministry of Commerce’s Catalog of Industrial Guidelines for Foreign Investment (the “MOFCOM Catalog”), which maintained a list of domestic industries in which foreign investment could be severely restricted or completely prohibited. The MOFCOM Catalog framework subjects each foreign investment to extensive government review and approval processes, including antitrust and national security reviews, regardless of the applicable industry. If approved, their business activities are strictly limited to the scope of their business licenses. In 2016, the MOFCOM catalog was replaced by the Special Administrative Measures for Foreign Investment Access (Negative List), which removed the universal review and approval processes. Under the Negative List framework, foreign investors are granted the same market access as domestic entities, unless the particular industry is restricted or prohibited for reasons of national security or public welfare. The negative list was gradually and significantly shortened and China continues to expand the market open to investors.

Since the beginning of 2020, in order to effectively respond to the COVID pandemic and stabilize the fundamentals of foreign trade and investment, China has introduced a set of policies to rescue enterprises facing difficulties and to offer massive support to market entities of all kinds kind, including foreign-invested enterprises as they resume operations. China, as a guide for effective prevention and control of the pandemic worldwide, has also been a leader in resuming production and restoring normalcy.

From the development of foreign investment in China after the “opening up”, we can see that after several dynasties of foreign investment, the restrictions on it have been reduced, the procedures for it have been simplified and the markets for it have been expanded.

Consequently, China has become and remains one of the most attractive destinations for foreign investors worldwide.

REFUTATION This article is for informational purposes only and does not constitute legal advice. Although the information in this article has been obtained from reliable official sources, no guarantee is given as to its accuracy or completeness. For more information, please visit dandreapartners.com or WeChat: dandreapartners

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