China’s draft foreign investment law: Too little, too fast, say critics

The new foreign investment law will replace existing regulations for joint ventures and wholly foreign-owned enterprises and is designed to ease foreign concerns about China's investment environment.
The new foreign investment law will replace existing regulations for joint ventures and wholly foreign-owned enterprises and is designed to ease foreign concerns about China's investment environment.PHOTO: AFP

BEIJING - China has fast-tracked a draft foreign investment law that it says will level the playing field for foreign firms, but overseas experts and businesses remain sceptical.

On Friday (March 8), the draft law was tabled for its third reading at the National People’s Congress (NPC), or China’s Parliament.

It is expected to pass with minimal amendments at the close of the NPC session next Friday.

Much slimmed down from previous versions, the draft legislation is meant to be a basic law governing foreign investments in China and will replace three existing laws.

At just 41 articles, it is far shorter than a 2015 version with 170 articles, which was stalled in the NPC.

The articles include provisions which state foreign firms will receive the same treatment as local firms when it comes to government procurement; promise to create a stable, transparent and predictable market environment; and ensure foreign firms are consulted on new policies and regulations.

 
 
 
 

The draft law also addresses many issues at the heart of trade frictions between China and the United States, including forced technology transfers and intellectual property rights.

NPC standing committee vice-chairman Wang Chen told lawmakers on Friday the draft law showed China’s commitment to “promoting high-standard investment liberalisation” while protecting investors’ legitimate rights.

Critics, however, said the draft law, which is being pushed through at an unprecedented rate, appears designed mainly to mollify American trade negotiators as the US and China move closer to a trade deal.

They noted that its first reading took place just last December, while most laws take years to pass.

“We are concerned that the drafting of the foreign investment law is being squeezed between the normal legislative process and the negotiation table with the US, in part to address the trade conflict,” said Mr Mats Harborn, president of the European Union Chamber of Commerce in China.

The broad terms and vague language in the current draft “read more like policy commitments than binding legal clauses, which leave room for discretionary implementation of the law”, he added.

Washington-based China analyst Austin Lowe said the ambiguous provisions mean that how the law applies in reality will be dictated by circulars issued by the Communist Party, which raises questions about its ultimate effectiveness.

“Given the current law’s shortcomings, China should at the very least implement supporting regulations to ensure the law’s good-faith implementation in sectors that are legally open to foreign investment,” he wrote.