China Changing Investment Laws

The Chinese Ministry of Commerce released the draft of the proposed new Foreign Investment Law to solicit public opinions. The proposed law will significantly reduce barriers to foreign investment, whilst at the same time increase scrutiny of foreigners trying to evade regulations on investing in restricted industries.

The new law introduces 5 major changes:

  1. Foreign-invested company laws repealed: WFOEs, foreign-invested equity JVs and contractual JVs will no longer have separate legal regimes.
  2. Broader definition of foreign investment: the new Foreign Investment Law creates a new definition for the term Foreign Investment.
  3. Annual report replaces pre-approval: all foreign investors need to submit a report upon making an investment. This report needs to be submitted to the local department tasked with handling foreign investment.
  4. Pre-approval only for negative list: The State Council will publish a negative list of industries in which foreign investment is restricted or prohibited. It will also set limits on the investment amount.
  5. National Security Review: China will assess whether foreign investment poses or may pose a threat to national security.

Investing in China is only going to get more difficult, but, if paperwork is done right, more flexible.