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China’s foreign investment law

19 February 2020

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The Foreign Investment Law in China came into effect on 1 January 2020 to replace other existing laws and Bill Guo, Managing Director, China, highlights why this is good news for the region.

China’s new Foreign Investment Law: will your investment concern in China be minimised?

The Foreign Investment Law (FIL) will replace the PRC Law on Sino-foreign Equity Joint Ventures, the PRC Law on Wholly Foreign-owned Enterprise, the PRC Law on Sino-foreign Cooperative Joint Ventures, and is effective as of 1 January 2020.

WHAT GOOD NEWS DID YOU GET FROM THE FIL?

National Treatment on the market entrance, except those in the Negative List

The FIL emphasises that foreign investment in China will get pre-national treatment, which means national treatment will be given equally to the foreign investment, unless the investment would fall into the Negative List issued by the State Council of China

Simplified registration process Registration rather than approvals

The FIL formally does away with the prior systems that required approval by the Ministry of Commerce and registration with the Administration of Industry and Commerce before a foreign investment could be permitted into China

Well protected Intellectual Property rights

One main concern of foreign investors, before they make decision, is whether their IP could be protected in China. The FIL gives a good answer, and especially specified that the government cannot force the IP transfer by administrative method.

LIFT OF THE QUOTA LIMITATION ON QFII AND RQFII OF CHINA GIVES MORE OPPORTUNITIES TO FOREIGN INVESTORS

According to the latest regulations of THE PEOPLE’S BANK OF CHINA (PBOC) and the State Administration of Foreign Exchange (SAFE), the investment Quota limitations of QFII and RQFII had been removed. Previously, China’s government always had strict rules on how foreign investors work in China’s capital market.

QFII and RQFII were established in 2002 and 2011, meaning that the qualified foreign investors could open the capital and stock account. Within the quota limitation, both could invest in China’s capital market.

However, with the rapid development of China’s capital market, the quota limitation of QFII and RQFII is no longer suitable for China’s opening environment of capital market. Furthermore, it also has no benefit for those investors manage their assets like bonds and stocks through different channels. With the limitation, it’s hard for both the investors and China’s capital market achieve more progress. Till the end of August 2019, the QFII and RQFII only hold 1.5% market values of A-share stock market.

This reform of removal of quota limitation, is a big step to fulfil the requests from foreign investors, and shows that the Chinese government is building a better investment environment. It also highlights that they’re continuing to deepen the reform of foreign exchange administration, expanding opening-up, supporting foreign investors to invest in domestic capital markets and facilitating cross-border investment and financing.

For more information on China’s foreign investment law and our offering in China, please get in touch.

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