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New PRC Foreign Investment Law Encourages Foreign Investment

Updated:2019-3-15 19:35:54    Source:www.tannet-group.comViews:668

The draft of the second foreign investment law has successfully passed the country’s top legislature on March 15,2019 and will be valid from January 1st, 2020. The new foreign investment law aims to provide stronger legal protection for further expanding, opening up and better using foreign investment.                                                            

The following covers the main changes and beneficial policies for foreign investors and enterprises in China:

I.Legal Names and Definition of Foreign Investment
The "P.R.C. Chinese-Foreign Equity Joint Ventures Law," the "P.R.C. Wholly Foreign-Owned Enterprises Law," and the "P.R.C. Chinese-Foreign Contractual Joint Ventures Law" are simultaneously abolished. Foreign-invested enterprises that are established in accordance with the "P.R.C. Chinese-Foreign Equity Joint Ventures Law," the "P.R.C. Wholly Foreign-Owned Enterprises Law," or the "P.R.C. Chinese-Foreign Contractual Joint Ventures Law" before this Law takes effect may retain their original corporate organizational forms within five years after the implementation of this Law.

II. Investment Promotion
The State implements the management scheme of pre-establishment national treatment plus negative list with respect to foreign investment."Pre-establishment national treatment" as used in the previous paragraph refers to affording foreign investors and their investments treatment no less favorable than that afforded to Chinese domestic investors and their investments, during the establishment, acquisition, expansion, and such other stages of an enterprise. The State affords national treatment to foreign investment outside the negative list. 

This law suggests that almost all restrictions on foreign investment in the previous three laws will be scrapped except for those on the negative list.The State's various policies that promote the development of enterprises equally apply to foreign-invested enterprises in accordance with law. Foreign-invested enterprises are to equally participate in standardization work, and the formulation of standards are to strengthen information disclosure and public oversight. Compulsory standards formulated by the State are to be applied equally to foreign-invested enterprises.

Foreign-invested enterprises may raise capital by publicly issuing stocks, corporate bonds, and other securities in accordance with law as well as through other means.

III. Investment Protection
The State will not expropriate the investment of foreign investors.Under special circumstances, the State may, for the public interest, expropriate or requisition the investment of foreign investors in accordance with the provisions of law. Expropriations and requisitions shall be conducted in accordance with legally prescribed procedure and promptly give fair and reasonable compensation.

Foreign investors' capital contributions, profits, capital gains, income from asset disposal, intellectual property right royalties in mainland China, as well as the compensation or indemnification they receive therein in accordance with law, may be freely transferred into or out of mainland China in RMB or foreign exchange in accordance with law.

IV. Intellectual Property Protection
The State protects the intellectual property rights of foreign investors and foreign-invested enterprises, protects the lawful rights and interests of intellectual property right holders and relevant right holders, and encourages technological cooperation conducted based on the principle of voluntariness and business rules.

V. Preferential Policies And Government Promises
As needed, the State is to establish special economic zones or implement experimental policy measures on foreign investment in certain areas to promote foreign investment and expand the scope of opening-up. Based on the needs of national economic and social development, the State encourages and guides foreign investors to invest in certain industries, fields, or regions and may give them preferential treatment in accordance with the provisions of laws, administrative regulations, or the State Council.

The State establishes working mechanisms for complaints by foreign-invested enterprises, coordinates and improves the major policy measures in work on complaints by foreign-invested enterprises, and promptly handles the issues raised by foreign-invested enterprises.

VI. Foreign Investment Access
Fields outside the negative list for foreign investment access are to be managed according to the principle of consistency between domestic and foreign investment.

VII. Reporting System
Foreign investors merge with or acquire domestic Chinese enterprises or participate in the concentration of business operators by other means, they shall submit to review of concentration of business operators in accordance with the provisions of the "P.R.C. Anti-Monopoly Law."

The State establishes a foreign investment information reporting system. Foreign investors or foreign-invested enterprises are to submit investment information to the competent departments for commerce through the enterprise registration system and the enterprise credit information disclosure system.

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