China’s new foreign investment law has been officially passed and will come into effect on Jan 1, 2020 – including the establishment of Foreign Investment Information Reporting System
On March 15, 2019, the National People’s Congress passed the Foreign Investment Law of the People’s Republic of China (the Foreign Investment Law) after several rounds of public consultation. The new law, which will come into effect on January 1, 2020, constitutes a fundamental framework for foreign investment in China. It establishes the following administration systems and incentive measures for foreign investment:
(1) National treatment and negative list administration systems
During the investment entry period, foreign investors (including natural persons, business entities, and other organizations from a foreign country) and their investments in sectors that are not on the negative list (which is an official list of specific sectors that are subject to special administrative measures on foreign investment entry) are accorded treatment that is no less favorable than that accorded to domestic investors and their investments.
(2) Foreign investment information reporting system
The state is to establish a system for reporting details of foreign investments. Foreign investors or foreign-invested enterprises shall, through the enterprise registration system and the enterprise credit information disclosure system, report details of investments to the authority responsible for commerce matters.
(3) Foreign investment security review system
The Foreign Investment Law reiterates the requirement to establish a security review system, which was initially provided under the Notice on Establishing a Security Review System for Foreign Investors to Acquire Domestic Enterprises issued by the General Office of the State Council of China in 2011 (known as Circular 6). Circular 6 provides specific requirements on the scope, content, work mechanism, and procedures regarding the security review, while only one single article under the Foreign Investment Law says that foreign investments that affect or might affect national security shall be subject to a security review and the decision made in accordance with the law is final. It remains to be seen if the detailed provisions under Circular 6 will be replaced by the Foreign Investment Law’s implementation rules, still to be formulated and issued in the future.
(4) Incentives of foreign investment
Foreign-invested enterprises will be treated the same as domestic enterprises, in accordance with the law, in relation to the various state policies supporting the development of enterprises, participation in standard-setting, the application of mandatory standards, and the state procurement of products and services provided by foreign-invested enterprises within China.
The Foreign Investment Law also confirmed that foreign-invested enterprises may raise financing in China through the public offering of shares or issuance of corporate bonds. Furthermore, foreign investors may, in accordance with law, freely remit profits, capital gains, royalties from intellectual property rights, lawfully obtained compensation and the proceeds of liquidation, out of China.