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published on 28 October 2020 | Reading time approx. 4 minutes
The new Foreign Investment Law entered into force on 1 January 2020. Since its adoption, it has already been expected that there should be positive changes for investments by foreign investors and foreign-invested companies. On 25 September 2020, the Standing Committee of the Shanghai People's Congress issued a new regulation on foreign investment (”the Regulation”). The Regulation will enter into force on 1 November 2020.
The Regulation is the first one of its kind on foreign investment in China at provincial level since the adoption of the new Foreign Investment Law, and has therefore received much attention. The Regulation consists of 51 articles in total, of which the following aspects deserve special attention:
In line with the opening policy of the state, the city of Shanghai is promoting the opening of the service sector. First of all, the financial sector, such as banking, securities, insurance, futures, trust and investment transactions, asset management, creditworthiness, etc. is to be opened up. Secondly, the opening up of telecommunications, Internet, medical care, transport, culture, education, etc. will also be encouraged. Initiatives will be taken, in order to implement other measures to further opening up of the service sector.
The National Development and Reform Commission (NDRC) and the Ministry of Commerce (MOFCOM) have published two negative lists (one for the whole country and one for Free Trade Zones). The negative lists are regularly updated and specify which industries are prohibited or restricted for foreign investors. NDRC and MOFCOM have also published a catalogue listing industries promoted for foreign investment. If other industries beyond the scope of these lists are to be opened to foreign investment in Shanghai, a special regime should be introduced for Shanghai.
Together with the other regions of the Yangtze Delta, the city of Shanghai intends to unify the opening up policy in this region. In this respect, the construction of the Eco-Green Integrated Development Demonstration Zone should be mentioned in particular. It is planned to adopt an unified list of investment projects subject to approval by the government in this region. The standards for company registration of foreign-invested companies should also be unified.
The Yangtze Delta region (mainly Shanghai, Zhejiang and Jiangsu) has received a large amount of foreign investment. If the governmental working procedures in this region are unified, this will bring much convenience, in particular for those investors who have several subsidiaries in the region.
A multilingual service platform for the promotion of foreign investment will be set up. The platform will for example provide access to laws and regulations regarding foreign investment, but also to industry trends and information on promoted investment projects.
The platform has already been established: http://www.investsh.org.cn. Especially new investors can use this platform to obtain general information about investment policies and approval procedures.
The investment in promoted industries under the national Catalogue of Industries for the Promotion of Foreign Investment will be encouraged through various support measures (Article 20). In addition, the establishment of headquarters and functional organizational bases of multinational companies (Article 21) and R&D centers (Article 22) will be supported by the government. Also, reinvestment will be encouraged through various preferential treatments (Article 24). Governments' commitments towards foreign investors and foreign-invested enterprises must be strictly adhered to, especially in case of organic (e.g. administrative division) or personnel discontinuity. The relevant government agencies are held legally responsible for those commitments that are ineffective or unenforceable.
Under the national treatment principle, China has hardly any substantial preferential policy for foreign investment. The focus of the Regulation is to offer better service and facilitation measures through the government.
In order to attract foreign investment, government agencies often make various commitments. Investors shall always make sure that these commitments are in conformity with the law. Article 25 of the Foreign Investment Law already stipulates that government agencies must fulfil its commitments in accordance with the law. The Regulation goes a step further and stipulates a liability for government agencies if their commitments are ineffective or unenforceable.
Capital contributions, profits, capital gains, proceeds from the sale of assets, intellectual property royalties, compensation received under the law and proceeds from liquidation may be freely transferred abroad or to China in RMB or foreign currency. In this regard, no entity or individual may unlawfully impose restrictions on the currency, amount and frequency of incoming and outgoing transfers.
Similar rules exist already. Nevertheless, in the practice companies often encounter the difficulty that capital cannot be transferred abroad freely. It is to be observed whether the Regulation will lead to an improvement in this regard.
Courts at all levels in the city are expected to swiftly accept and examine applications for preservation of evidence and injunctions in relation to intellectual property rights of foreign investors and foreign-invested companies. The courts should also take decisions in accordance with the law and enforce them without delay. Punitive damages and other punitive measures will be applied in accordance with the law in cases of repeated or malicious infringements and other serious violations.
Effective protection of intellectual property rights depends to a large extent on an efficient judicial system. If the courts can examine and decide more quickly on applications for preservation of evidence and injunctions, the chances of successfully enforcing intellectual property rights will improve.
The Regulation sends a positive and open signal for foreign investment. However, it should be noted that the provisions in the Regulation are rather abstract. Whether the Regulation will have a positive impact depends on how the rules are ultimately implemented in practice.
It will also be necessary to follow up whether other provinces will adopt similar regulations to attract foreign investment. New developments in this respect should be kept under review.
Jiawei Wang, LL.M.
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Qinglu Shao
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