Side note: although far from the biggest of the BigLaw firms, Debevoise & Plimpton are very good at what they do.
From the CLS Blue Sky blog, April 10:
Debevoise Discusses China’s New Foreign Investment Law
On March 15, 2019, China’s top legislature, the National People’s Congress, passed the long-anticipated new Foreign Investment Law (the “FIL”). Promulgation of this legislation is widely held to have been accelerated in response to changes in China’s economic conditions, in particular cross-border trade tensions and increasing pressure on China’s domestic economy in recent years.
The FIL, which will become effective on January 1, 2020, will replace the primary laws that have been governing foreign-invested enterprises (“FIEs”) in China for the last four decades: the Sino-foreign Equity Joint Venture Law, the Sino-foreign Cooperative Joint Venture Law and the Foreign Enterprise Law (the “FIE Laws”). However, unlike the FIE Laws, which provided in detail the requirements on establishment, governance and operation of FIEs, the FIL contains only 42 provisions stipulating overall guidance on regulation and protection of foreign investment in China (which covers foreign investments as well as those from Hong Kong, Macau and Taiwan).
Negative list approach. The FIL confirms that foreign investment in China will be regulated under the negative list approach, which has been applied nationwide since late 2016, after having been tested in pilot free-trade zones. Under the previous regime, prior approval from regulators was required for the establishment and subsequent changes of any FIEs. Under the FIL, establishing FIEs in sectors not on the negative list for foreign investment will only require record-filing with the relevant governmental authorities.
The latest negative list, which was issued by the Ministry of Commerce and National Development and Reform Commission in June 2018, includes 48 industries in which foreign investment is either restricted or prohibited. Investments in restricted industries (such as life insurance, securities and nuclear power) are typically subject to foreign ownership restrictions, while prohibited industries (such as operations of news agencies and radio/television networks) are off-limits for foreign investment.
Subject to the negative list restrictions, the FIL provides for a “national treatment system” whereby foreign investors and domestic investors in China will be treated equally in terms of market entry. The FIL also provides that any existing or future regulations governing foreign investment in banking, securities, insurance and other financial industries remain and will be valid, which implies that China is still cautious about further opening up in these industries and any such opening-up will take place under different legislation. In that regard, Chinese Premier Li Keqiang has stated on March 15 that additional supplemental rules will be issued to implement the FIL.
Unified corporate governance requirements. Historically, FIEs have been subject to a mixed set of corporate governance requirements under the FIE Laws and the laws primarily applicable to domestic companies, including the PRC Company Law. These sets of laws differ from each other in many respects. For example, under the Sino-foreign Equity Joint Venture Law, the board of directors is a company’s highest governing authority, while the PRC Company Law provides that shareholders’ meeting is the highest governing authority of a company. These differences or conflicts often caused confusion for investors and even regulatory authorities, both in terms of interpreting and implementing legislation......MORE
