The new Foreign Investment Law and its implementation regulations lay out a blueprint full of promise for international companies in China. But the lack of details may present problems, writes Edward Chin
In one of the most important legislative changes in nearly three decades, the central government has finally moved closer to opening its markets to international businesses through the implementation of the Foreign Investment Law (FIL) and the issue of its Implementing Regulations of the Foreign Investment Law.
Not only is this a change in law, it represents “a change in mindset and a move away from [the] focus on protecting the weaker local businesses to treating all businesses equally,” says Andrew McGinty, a partner at Hogan Lovells based in Hong Kong. It’s a mindset that says to the global business community that China is open for business.
Notes Fang Jian, a partner at Fangda Partners based in Shanghai: “[The law is] a general relaxation in foreign investment, including in the Chinese market, and lays the foundation for further opening up [of] policies and measures.
“[The FIL] has laid down a new framework for China to regulate foreign investment, and has made positive changes to the basic legal system established by the law of foreign-funded enterprises, which means more certainty and freedom of contract for foreign investors to invest in China.”
Some of these changes include: the shift in governance from a board-driven model to a shareholder model; relaxation of the sector-specific foreign investment rules; and the consolidation of the rules governing mergers and acquisitions (M&A) and indirect investment under a single law and regulatory framework.
But although the FIL is a big step in harmonizing the foreign investment regime with the domestic company regime, there remain many challenges and obstacles the law that still need to be addressed for foreign investors interested in China.
Experts are questioning the detail, or the lack of it, in the law and the implementing regulations, in areas that will undoubtedly concern foreign investors. They point to the need for further clarification, which is expected in further amendments, but in the meantime much is open to interpretation, and foreign investors should proceed with caution.