2024 RT Amination Banner.gif

China Daily

HongKong> Opinion> Content
Monday, April 01, 2019, 15:11
New law to boost business confidence
By Teo Tong Kooi
Monday, April 01, 2019, 15:11 By Teo Tong Kooi

The decision by the National People’s Congress, China’s top legislature, to replace the trio of laws pertaining to foreign capital that were passed decades ago shows the country is serious about protecting the rights of foreign investors and continuing its commitment to reform and opening-up.

The new Foreign Investment Law, passed on March 15, will take effect on Jan 1. The three laws on foreign-invested ventures were adopted between 1979 and 1990.

The revised legislation protecting foreign investors covers key areas, including market access, government procurement, prohibiting forced technology transfers, punishing intellectual property theft and stemming illegal government meddling in foreign practices. Under the new law, Chinese officials are required to keep proprietary information of foreign companies secret or face criminal prosecution.

Beijing is sending the message to the global community that it wants to level the playing field of the world’s second-largest economy. It reassures them that China remains an attractive investment destination by constantly improving its foreign investment environment.

The legislation also reflects how local enterprises are now ready to compete with their foreign counterparts. 

The law is a fundamental change in China’s foreign investment policies, which will provide openness, transparency and predictability of the overall investment environment and provide legal protection to foreign investors and foreign-invested enterprises. It will create more conducive investment conditions for investors and help them to plan long-term investments in China.

The law essentially consists of six chapters, with 42 articles. 

The most encouraging aspects of the law are mainly stipulated in Chapter III, which lists a number of protective measures for foreign investment.

Several other articles are worth highlighting. Article 22 prohibits forced technology transfer by administrative measures. Article 23 bars government servants from unlawful disclosure of trade secrets acquired at work. Article 25 requires local governments to fulfill their policy commitments to foreign investors. Under Article 26, foreign investors are allowed to file complaints against government agencies and their employees.

The measures introduced under Chapter III effectively deter government agencies and their employees from colluding with locals at the expense of foreign investors, and government officials will be prevented from blatantly protecting the locals. This will boost the confidence of foreign investors, especially in intellectual property protection.

Chapter II includes policy measures for promoting foreign investment. Foreign investors will be treated equally with locals in the areas of business development policies, formulation of standards and application of compulsory standards and governmental procurement, except those placed on the negative list.

Another significant measure introduced is that foreign-invested enterprises are allowed to raise capital by issuing securities or through other means.

The new legislation has received an enormous and positive response from the international community. 

However, there remain areas that investors are wary of, such as the enforcement mechanism. There is a procedure to address the complaints of enterprises with foreign investment should they seek redress following any perceived infringement of the new law. But enforcement transparency, especially from the judiciary branch, remains to be detailed by ensuing regulations.

There are still nine months before the law takes effect, which offers additional time for foreign companies to resolve outstanding issues with the regulators.

Decades after China opened up its market in the late 1970s and early 1980s, foreign brands, especially those in the luxury sector, now dominate the market. There is not a single Chinese brand that can be said to compete effectively with foreign ones in the luxury category.

When you walk into a big shopping mall in a first- or second-tier city on the Chinese mainland, you will probably see only foreign brands occupying prime spots, very much like malls in Hong Kong or Singapore.

Chinese domestic automakers are similarly lagging behind their foreign competitors. Imported drinks and foodstuffs are also the preferred choice of the more affluent consumers in all major Chinese cities.

Foreign enterprises have been highly successful in their investments in China, and they will continue to be. They can hardly find another market that matches China in terms of size and potential.

Other than understanding local rules and regulations, they must also invest in human resources — putting the “right people” in the right marketplace.

The introduction of the law is timely and will instill confidence in foreign investors. This is a very important piece of legislation that investors have been waiting for. It will change foreign investors’ perceptions of investing in China. In the longer term, one way or another, it will also have an impact on Chinese companies investing overseas.

The author is a board member of the Malaysia Chinese Business Council and CEO of Beijing DPS Corporate Advisory. 

The views do not necessarily reflect those of China Daily.


Share this story

CHINA DAILY
HONG KONG NEWS
OPEN
Please click in the upper right corner to open it in your browser !