China has attracted a great amount of foreign investment in the four decades since the beginning of its reform and opening up in the late 1970s. By the end of 2018, a total of 960,000 foreign-invested enterprises had been set up in China, and the actual use of foreign capital exceeded US$2.1 trillion. According to statistics released by the United Nations Conference on Trade and Development (UNCTAD), China’s actually used foreign capital has ranked first among developing countries for 27 years in a row since 1992.
In the early days of reform and opening up, foreign investors paid more attention to China’s low costs of labor and cheap natural resources. As China develops, its unified massive market and quality talents have become the most attractive aspects for foreign investors. With a total population of 1.4 billion, China has the largest middle-income group in the world. The importance of the Chinese market to all multinational companies is self-evident. In addition, the fundamental driving force for global economic growth lies in innovation. China can provide foreign companies with rich scientific and technological talents in fields like scientific research and manufacturing, which is rarely available in other countries in the world.
While China remains fairly attractive to foreign investment, it is constantly striving to improve its business environment.
On January 30, 2019, the 8th meeting of the Standing Committee of the 13th National People’s Congress (NPC) reviewed a new draft of the Foreign Investment Law of the People’s Republic of China and decided to submit the draft to the Second Session of the 13th NPC for deliberation. The draft foreign investment law to be deliberated at this year’s two sessions will exert positive influence on China’s attraction of foreign investment.
China did not have a separate foreign investment law in the past. Instead, according to the actual situation and the economic development at that time, different laws were introduced to regulate different aspects, such as investment, registration, and operation. These laws are the Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, Law of the People’s Republic of China on Chinese-Foreign Contractual Joint Ventures, and Law of the People’s Republic of China on Foreign-Capital Enterprises. In addition to these three laws, there are still many laws related to foreign investment, but the provisions are usually corresponding measures based on specific situation. These measures are not comprehensive laws. So there are shortcomings, and some parts are not unified but instead, contradictory to each other. This is not a suitable scenario for China’s further opening up.
Therefore, it is necessary to regulate foreign investment with a unified and basic law. The foreign investment law will enhance the status of foreign enterprises in the Chinese economy and enable them to participate fairly in economic activities. For example, it adheres to the management model of pre-establishment national treatment plus a negative list for foreign investment. And by replacing the approval system with a negative list system, the restrictions in the field of investment are greatly reduced. Foreign-invested enterprises can raise funds in accordance with the law through public issuance of stocks, corporate bonds and other methods, which will play a substantial role in attracting foreign investment. At the same time, after the law is promulgated and implemented, the registration procedures for foreign businesses will be reduced and the time required will be shortened, bringing great convenience to foreign investors.
The author is a research fellow from the Chongyang Institute for Financial Studies at Renmin University of China.