China agrees to foreign investment law, pledges cooperation with US, European firms
China’s rubber-stamp parliament approved a foreign investment law on 15 March that may serve as an olive branch in trade talks with the United States, but it received a lukewarm welcome from business groups.
The legislation aims to address long-running grievances from foreign firms including stronger protections for intellectual property, but the US and European chambers of commerce voiced concerns that they were not given enough time to give their input.
The National People’s Congress voted 2,929 in favour of the law — with eight against and eight abstentions — barely three months after a first draft was debated, an unusually quick turnaround for the legislature, which meets once a year.
The move comes as US and Chinese negotiators hold complex talks aimed at resolving a months-long trade war that has pounded businesses with tariffs on $360 billion in two-way commerce.
US President Donald Trump said on 14 March the negotiations should wrap up within four weeks, adding: “We are getting what we have to get.”
China’s top trade negotiator, Liu He, held phone talks with US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer, with the official Xinhua news agency saying they made “substantial progress”.
The bill will eliminate the requirement for foreign enterprises to transfer proprietary technology to Chinese joint-venture partners and protect against “illegal government interference” — major sticking points in the trade negotiations.
The legislation will come into force on 1 January 2020.
China will also amend its intellectual property law and “introduce a punitive damages mechanism to ensure that all infringements will be seriously dealt with”, Chinese Premier Li Keqiang told reporters at the end of the parliament’s two-week session.
The changes will “ensure violators have no place to hide”, he said.
Under the bill, foreign investors will enjoy the same privileges as Chinese companies in most sectors, unless they have been placed on “negative lists”, officials say.
Small slice’ of concerns
Li said China will soon announce shorter negative lists and continue to trim them in future, “increasing the scope of what is not prohibited”.
Tim Stratford, chairman of the American Chamber of Commerce in China said, “the last minute efforts are appreciated”.
But, he added, the changes “only address a small slice of the overall set of concerns our members have about the uneven playing field foreign companies encounter in China”.
The chamber was concerned about vague language in provisions that allowed local governments to expropriate investments that “harm public interest” and the inability to appeal against the outcome of national security reviews.
Jacob Parker, Beijing-based vice president at the US-China Business Council, welcomed the “positive language” in the bill but added that “real investment on the ground will depend on how narrowly tailored those negative lists are going forward”.
Businesses are still concerned that industry-specific laws and local administrative approvals may impede full market access despite provisions in the negative list.
The European Union Chamber of Commerce in China had earlier complained that Beijing was rushing the investment law to appease the United States.
“More than anything else, foreign companies want equal treatment and opportunities,” said Mats Harborn, president of the European Union Chamber of Commerce in China.
“While not all of our concerns were addressed in this law, it is time to move forward,” he added.
Both the EU and American trade chambers had urged China to consider having a single Company Law to govern both foreign and domestic enterprises, as is common in many countries.
The law includes a new article on protecting foreign companies’ commercial secrets and fleshes out criminal penalties for officials who leak confidential information they obtain from overseas businesses.
“I think we can safely assume that this language is a result of the trade negotiations as it was slipped in at the last minute,” Parker said.
The European Chamber singled out one of the law’s stipulations that permits China tit-for-tat retaliation against any country that discriminates against Chinese investment.
“This clause allows for political issues to influence investor-state relations, and gives China power to take unilateral action,” the European chamber said.
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