On December 26, 2019, the Supreme People’s Court issued the Interpretations of the Supreme People’s Court on Issues in the Application of the Foreign Investment Law of the People’s Republic of China (the “Interpretations”) to provide the following interpretations on the application of law in the trial s involving an investment contract dispute between equal parties by people’s courts for the proper application of the Foreign Investment Law of the People’s Republic of China, equal protection of the rights and interests of Chinese and foreign investors, and the create a stable, fair, and transparent business environment under the rule of law, and accommodate trial practices.
1. The types and contents of investment contracts
Investment contracts refer to agreements formed by foreign natural persons, enterprises or other organizations in foreign countries as a result of its direct or indirect investment in China. This includes contracts for the establishment of a foreign-invested enterprise, share transfer contracts, equity transfer contracts, contracts for the transfer of property shares or other similar rights, or contracts for new projects. In addition, the Interpretations will apply to contract disputes arising from foreign investors who gained corresponding rights as a result of gifts, property divisions, business mergers or acquisitions, or enterprise spin-offs.
2. More details on the validity of various investment contracts
Investment contracts formed in regions other than the Foreign Investment Access Negative List are still valid without the approval and registration by the relevant administrative authorities. Investment contracts of foreign investors who invest in regions prohibited in the negative list shall be deemed invalid.
For those that invest in restricted regions in the negative list, if the special administrative measures for restrictive access are violated, the investment contract shall be deemed invalid, but if the investor parties took the necessary measures to satisfy the special administrative measures before the people’s court has rendered an effective decision, the investment contract shall be deemed valid.
If a foreign investor invests in a region that is no longer prohibited or restricted from investment due to an amendment of the negative list that took effect before an effective decision has been rendered, the investment contract shall be deemed valid.
3. The Interpretations apply to investors from Hong Kong, Taiwan and Macau.
The People’s Court may reference and apply the Interpretations in hearing disputes relating to investment in the Chinese mainland by investors from the Hong Kong Special Administrative Region or the Macau Special Administrative Region, as well as Chinese citizens residing abroad whose investments are in mainland China or in Taiwan.