Interpreting The Key And Difficult Points Of The Foreign Investment Law Of The People's Republic Of China

1. What is foreign investment?

A: According to Article 2 of the Foreign Investment Law, foreign investment refers to the investment activities conducted directly or indirectly by foreign natural persons, enterprises or other organizations (hereinafter referred to as foreign investors) within the territory of China, including the following circumstances: (1) Foreign investors establish foreign-invested enterprises within the territory of China alone or jointly with other investors; (2) Foreign investors acquire shares, stock rights, property shares or other similar rights and interests of enterprises within the territory of China; (3) Foreign investors investing in new projects in China alone or jointly with other investors; (4) Investment in other forms prescribed by laws, administrative regulations or The State Council.

This article needs to clarify the following points: First, foreign investment must be made by foreign investors. Foreign investors include foreign natural persons, enterprises or other organizations, which may be natural persons, legal persons or unlegal organizations, profit-oriented organizations or non-profit-oriented organizations. Second, foreign investment includes direct investment and indirect investment, but the Foreign investment Law does not specify the standard of indirect investment, leaving it to be further refined by State Council regulations or departmental rules. Third, the investment must be within the territory of China, and the investment outside the territory of China is not subject to this Law. Fourth, it must be an investment behavior. Investment is a profit-oriented behavior, and non-profit-oriented behavior is not regulated by this Law. Fifth, foreign investment includes four basic types: newly established foreign-invested enterprises (newly established); Merger and acquisition (acquisition of equity, shares or other interests of domestic enterprises); Newly established investment projects; Other ways of investment (What are other ways of investment, the law does not make clear, left to the relevant supporting regulations to clarify.)

2. The difference between foreign investment and foreign-invested enterprises?

A: The name of the Foreign Investment Law is clearly different from the three Laws on Foreign Investment (Law on Chinese-Foreign Joint Ventures, Law on Foreign-funded Enterprises and Law on Chinese-foreign cooperative Ventures), and the word "enterprise" has been deleted. At the same time, Article 2 of the Foreign Investment Law, on the basis of the relevant provisions on foreign investment, further stipulates that "enterprises with foreign investment refer to enterprises that are wholly or partly invested by foreign investors and registered and established in China in accordance with Chinese laws." It shows that legislators distinguish the legal concepts of foreign investment and foreign-invested enterprises, and grasp this distinction from the following aspects:

First, the regulatory focus of foreign investment Law has undergone a major shift, from regulating foreign investment enterprises to regulating foreign investment behavior. Foreign Investment Law is more concerned with foreign investment behavior, rather than the governance of foreign investment enterprises.

Second, the change of foreign investment law to regulate foreign investment behavior conforms to the trend of international investment. For example, the 2012 Model Bilateral Investment Treaty of the United States makes it clear that foreign investment refers to any assets with investment characteristics that are directly or indirectly owned or controlled by investors, including the investment of capital or other resources, the expectation of returns or profits, or the assumption of risks. The forms of investment include :(a) enterprises; (b) Shares, shares or other forms of participation in the enterprise; (c) Bonds, debentures or other debenture documents and loans; (d) Futures, options and other derivatives; (e) Turnkey, construction, management, production, licensing, revenue-sharing and other similar contracts; (f) Intellectual property rights; (g) Licences, authorizations, permits and other similar rights granted under national law; (h) other tangible or intangible property, movable or immovable property, and related property rights, such as leases, mortgages, liens and pledges. The Foreign Investment Law also fully absorbs the common practice of international investment and introduces the concept of "foreign investment", which fully broadens the forms and forms of foreign investment. It can be said that this is another major institutional innovation in China's opening up of foreign investment after the implementation of negative list management for foreign investment in 2016.

Third, foreign-invested enterprises are the direct result and main form of foreign investment. Foreign investment can not only choose investment enterprises, but also take the form of project cooperation or investment in intellectual property rights, property rights and interests. Whether it is merger and acquisition or new investment, the mainstream and main form of foreign investment is that investment enterprises eventually form foreign-invested enterprises. Internationally, the majority of foreign investment is dominated by foreign-invested enterprises, but not all foreign investment.

3. Can foreign investors invest in all types of companies?

A: The Foreign Investment Law does not specify the form of foreign-invested enterprises, but the form of investment is usually a horizontal management measure, which is usually listed in the form of negative list or specified in other laws and regulations. The extent to which a country allows foreign investors to invest in businesses depends on its level of economic development and legal tradition. Currently, the "Special Administrative Measures for Foreign Investment Access (Negative List) (2018 edition)" clearly stipulates that "foreign investors are not allowed to engage in investment operations as individual industrial and commercial enterprises, sole proprietorship enterprises, members of farmer cooperatives.

We believe that individual industrial and commercial enterprises, sole proprietorship enterprises and agricultural cooperatives have their unique national conditions and background, and they are not expected to be open to foreign investors in the near future. However, this does not affect the relevant treatment of foreign investors in China's market access, but only the choice of investment forms.

4. What is the macroscopic value orientation of the country towards foreign investment?

A: Article 3 of the Foreign Investment Law stipulates that "the State adheres to the basic state policy of opening up and encourages foreign investors to invest in China in accordance with the law." This is the basic attitude of the state towards foreign investment. The state regards foreign investment as a scarce resource and encourages it as long as it is in accordance with the law.

Article 3 of the Foreign Investment Law further defines that the main path to promote foreign investment is to "implement high-level investment liberalization and facilitation policies". The main goal is to "establish and improve the foreign investment promotion mechanism and create a stable, transparent, predictable and fair competition market environment".

5. What are the basic management principles of foreign investment?

A: The Law on Foreign-invested Enterprises stipulates that "the state implements a management system of pre-establishment national treatment plus a negative list for foreign investment." This is the basic principle of foreign investment management. An accurate understanding of this principle should be grasped from the following aspects: First, pre-establishment national treatment refers to the treatment given to foreign investors and their investments at the stage of investment access, which is no less than that given to domestic investors and their investments. Second, the negative list refers to the special management measures for foreign investment access in specific fields stipulated by the state. Third, foreign investment that is not on the negative list shall be granted national treatment. Fourth, the negative list is issued by The State Council or approved by The State Council. The negative list is generally issued by The State Council or approved by The State Council. Other units or local governments shall not issue a negative list for foreign investment without the authorization of The State Council. Fifth, if the international treaties and agreements concluded or acceded to by China provide more preferential treatment for the access of foreign investors, the relevant provisions may be implemented. This will leave legal space for our country to sign international treaty, especially the BIT treaty with the relevant countries.

6. What is the bottom line for foreign investors and foreign-invested enterprises?

A: Article 6 of the Foreign Investment Law stipulates that "foreign investors and foreign-invested enterprises investing in China shall abide by Chinese laws and regulations and shall not endanger China's national security or harm public interests."

7. Which departments are responsible for foreign investment administration?

A: Article 7 of the Foreign Investment Law stipulates that "the competent department of commerce and the competent department of investment under The State Council shall carry out the promotion, protection and management of foreign investment according to the division of duties; Other relevant departments of The State Council shall be responsible for the promotion, protection and management of foreign investment within the scope of their respective functions and responsibilities." "The relevant departments of the local people's governments at or above the county level shall promote, protect and administer foreign investment in accordance with laws and regulations and the division of duties determined by the people's governments at the same level."

We should start from the following aspects to understand this article: First, the competent foreign investment department which has no legal significance in our country. At the central level, the promotion, protection and management of foreign investment are respectively responsible by the competent Commerce Department and the competent investment department, mainly by the Ministry of Commerce and the National Development and Reform Commission. Second, at the central level, the departments of health, industry and information technology and culture are responsible for the promotion, protection and management of foreign investment in their respective fields. These show that the establishment of our country is based on the commerce and investment competent authorities and the support by relevant departments in the relevant fields, relatively dispersed foreign investment management situation, foreign investment management responsibilities are relatively dispersed, the popular saying is "each railway police oversees a section" and "who's child holds". Dispersed management is in line with the international trend. It reduces the system cost of secondary examination and approval and multi-head management, which will exert great influence on our foreign investment management mode.

The administrative duties of the people's governments at or above the county level have been further clarified, and the institutional arrangement under which foreign investment management can only be administered by The State Council or by the people's governments at the provincial level authorized by The State Council has been changed, giving people's governments at or above the county level a legal basis for implementing foreign investment management.