Regulations on the Implementation of the Foreign Investment Law of the People’s Republic of China (Mainland China)

Karl Zhang

On December 12, 2019, the 74th executive meeting of the State Council adopted the Regulations on the Implementation of the Foreign Investment Law of the People’s Republic of China (the “Regulations”) and announced on the 26th of the same month that the Regulations would go into effect on January 1, 2020.  The Regulations, which interpret and refine the implementation of the Foreign Investment Law, are highlighted below.

1. Application and of the Regulations and the transition period

The Regulations specifically provide that foreign investors may jointly invest in the establishment of foreign-invested enterprises in China with Chinese natural persons.  For investment in the Chinese mainland by investors from the Hong Kong Special Administrative Region and the Macao Special Administrative Region, such investment shall be implemented in reference to the Foreign Investment Law and the Regulations unless specified otherwise in law, administrative regulations or by the State Council.  For investment in mainland China by investors from Taiwan, the Law of People’s Republic of China on Protection of Investment by Taiwan Compatriots (the “Taiwan Compatriot Protection Law”) and its detailed implementation rules shall govern.  For matters not stipulated under the Taiwan Compatriot Protection Law and its detailed implementation rules, the Foreign Investment Law and the Regulations shall be referenced.

Existing foreign-invested enterprises established before the effective date of the Foreign Investment Law may adjust their organizational forms and structure pursuant to the new law within 5 years after the implementation of the Foreign Investment Law and complete their amendment registration.  They can also retain their original organizational forms and structure, but starting from January 1, 2025, the market supervisory and administrative authorities will not accept applications for other registration matters and will publicly disclose the relevant circumstances from those that do not adjust their organizational form and structure pursuant to law.  After the organizational forms and structure of the existing foreign-invested enterprises are adjusted in accordance with law, share or equity transfers and the distribution of profits or the remaining property may be carried out or continued as originally agreed between the parties in accordance with the previous agreements.

2. The Negative List and information reports

With respect to the Negative List, the Regulations stipulate that the Negative List for the Access of Foreign Investment shall be prepared by the investment authority under the State Council in conjunction with relevant authorities, such as the commerce authority under the State Council, and it will either be submitted to the State Council for promulgation, or promulgated by the investment authority and the commerce authority under the State Council after the State Council’s approval is obtained.

The content, scope, frequency of and the specific process for the foreign investment information report shall be as determined and announced by the commerce authority under the State Council the market supervisory and administrative authority under the State Council and other relevant authorities in accordance with the principles of necessity, efficiency and convenience.  The commerce authority and other relevant authorities shall strengthen information sharing and shall not request from foreign investors or foreign-invested enterprises of investment information that may already be obtained through information sharing between authorities.

3. Investment promotion and protection

In terms of legislative participation, in formulating administrative regulations, rules, and regulatory documents relating to foreign investment, and the drafting of laws and local regulations relating to foreign investment by the government, input and recommendations from foreign-invested enterprises shall be obtained as circumstances require, and feedback on their adoption should be provided through appropriate means.  Regulatory documents relating to foreign investment shall be published in a timely manner, and those that have not yet been announced shall not be relied on as a basis for administration.  Regulatory documents closely related to the production and operational activities of foreign-invested enterprises shall take into account the actual circumstances, and the time between their promulgation and implementation should be reasonably determined.

For government procurement, the Regulations gives foreign-funded enterprises free access to the government procurement market in their region and industry.  They may also send inquiries to procurers and procurement agencies and file complaints with a government procurement supervisory and administrative authority.

On the protection of property rights, investment by foreign investors is not subject to expropriation by the state.  If investment by foreign investors is expropriated by the state under special circumstances for public interest, such expropriation shall be conducted in a non-discriminatory manner with timely compensation based on the market value of the expropriated investment provided.  A foreign investor dissatisfied with an expropriation decision may apply for administrative reconsideration or bring an administrative action.

In terms of foreign exchange, a foreign investor’s capital contribution, profits, capital gains, income from asset disposal, intellectual property licensing fees, compensation for damages, and liquidation income in China may be freely remitted inbound or outbound in Renminbi or foreign currencies.  No unit or individual may set restrictions on the currency, amount and frequency of such inbound or outbound remittances.