China’s New Foreign Investment Law: “Moving toward level playing fields”

The Foreign Investment Law was published on 15 March 2019. It was announced as the first time that PR China law has confirmed that Foreign Invested Enterprises shall receive the same treatment as domestic enterprises. Having worked in China for over 20 years, do you consider it a truly groundbreaking law in this regard, ensuring a level playing field for Foreign Invested Enterprises?

Mats Harborn: That the three laws that previously governed foreign investments in China are now abolished and that foreign investments come under the same rules as Chinese companies is groundbreaking. The Foreign Investment Law is a law stating a number of principles, most of which we welcome and that basically serve to confirm national treatment and equal treatment. We are moving toward level playing fields. What we object to is that the Foreign Investment Law maintains a clear definition between foreign and domestically invested companies. This may still provide room for discrimination against foreign invested companies. At the same time we understand that a foreign invested company needs to be defined with regard to the negative list and to the national security law, but that definition could have been made in another place.

The foreign business community has been demanding equal treatment for foreign companies in China for quite a while – why was the Foreign Investment Law only published now? 

Mats Harborn:
Very clearly China wanted to demonstrate toward the US that all the concerns that the US (and EU) have raised are now addressed in a law. We now need to monitor whether the principles expressed in the Foreign Investment Law really do get implemented and that either implementation rules are created or that existing legislation is identified to detail the implementation of these principles. 

Under Article 40 of the Foreign Investment Law, PR China reserves the right to take corresponding measures against a country or region that takes discriminatory prohibitive, restrictive or similar measures against Chinese investments. Was this clause included to keep a back door open with regard to the tensions with the US and how do you think it could be applied in a European context?

Mats Harborn:
Yes, this is a tit-for-tat clause or, as we like to call it, a “sand pit” clause. Unfortunately, there is a risk that Article 40 can be applied to any country and its companies. All such issues should be dealt with through existing bilateral agreements or through the multilateral trading system with the WTO at its core. The Foreign Investment Law was pushed through the system. Now it is law and now we will focus on its implementation. As a Chamber we are pleased that a few of our comments were actually picked up and incorporated into the Foreign Investment Law in spite of the fast pace at which it was pushed through.

Mats Harborn

President of the European Union Chamber of Commerce in China