Business Maverick

Business Maverick

China’s New Investment Law a Positive Step

China’s new law governing foreign investment that will take effect next year addresses some of the core concerns of companies operating in the country, though questions remain on how it will be implemented, according to organisations representing US and European firms.

A draft of regulations related to the law takes a positive step toward dealing with issues around unequal access to China’s market and intellectual property protection, the U.S.-China Business Council said. The implementation guidelines have added clarity in a number of areas, though some could be clarified further, the EU Chamber of Commerce added.The document that was circulated to some organizations for comment pledges greater recourse when intellectual property rights are violated and allows foreign firms to interact with local governments and also participate in the drafting of standards and government procurement, U.S.-China Business Council Vice President Jake Parker said in an e-mail. It also emphasizes that government officials can’t compel the transfer of technology from foreign companies, he said.

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“However, the draft falls short of specifying the types of disclosures of trade secrets that will be prohibited and clarifying the types of administrative organs to which the provisions on technology transfer apply,” Parker said.

The new law aims to level the playing field by treating both foreign and domestic firms equally and promises to do more to protect overseas companies’ technology and know-how. The law was passed in March and the government is now circulating draft regulations on how it will be implemented to foreign firms and chambers of commerce, looking for feedback.

The draft was sent around by the State Council, the National Development and Reform Commission, and the Ministry of Justice, with a deadline for feedback at the end of the month, according to Adam Dunnett, Secretary-General of the EU Chamber of Commerce.

“The law is intended to address many of the long-standing issues that we’re constantly talking about,” Dunnett said in an interview on Tuesday. “It’s going to come down to how it’s implemented in practice, and that’s how people will determine their overall view on this in the longer run.“

As part of the process, the Commerce Ministry and other agencies also consulted with foreign businesses on the law at a summit for multinational companies in Qingdao over the weekend, according to state-run newspaper China Daily.

National Security

“We look forward to additional details on the national security provisions to ensure that national security is clearly defined and applied only in specific circumstances and as narrowly as possible,“ the U.S. Council’s Parker wrote.

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Parker welcomed the discussion in the draft about providing equal access to government procurement for both foreign and domestic firms, although he noted that there was no definition of “domestic content.” Both Parker and Dunnett said that often, this was interpreted as meaning goods made in China by Chinese firms, putting foreign companies at a disadvantage, even if they manufacture in China.

However, since the draft was released, China has made a new offer to join the World Trade Organization’s agreement on government procurement. Joining would limit the ability of China’s government to favor domestic firms, and would allow foreign firms to use the WTO system for recourse if they were blocked from government contracts in China, according to Parker.

China joined the WTO in 2001 and was granted observer status to the procurement agreement in 2002. This new offer is the seventh it has made.

The EU Chamber’s Dunnett struck a cautious note about the new law, even as he praised the added transparency, better technology protection and talk about giving foreign companies access to standards-setting bodies.

“The laws and regulations in this country are by-and-large very good,“ he said. “The problem is when it comes to implementation, and people at different levels will interpret it in different ways.

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Otsile Nkadimeng - photo by Thom Pierce

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