event
19 Jan 2015: draft Foreign Investment Law open for comment until 17 feb 2015. After enactment foreign investments need only be reported to MofCOM and should enjoy national treatment. In restricted areas approvals will still be required. The new law will replace
- Sino-Foreign Equity Joint Venture Law
- Wholly Foreign-owned Enterprise Law
- Sino-Foreign Cooperative Joint Venture Law
signals
- shift to negative list policy underlines need to stimulate market
- national security review of foreign investments in strategic sectors (e.g. telecommunications) likely to be within the new National Security Commission's scope
- targets of desired investment is expanding to bonds, stocks, land-use rights, property purchases etc
- shift to company control, not capital ownership, in defining which 'variable interest entities' (VIEs) receive national treatment
- cutting red tape using online reporting may reduce compliance costs
context
12 Dec 2014: Following the Shanghai FTZ (SFTZ), newly-announced Tianjin, Guangdong and Fujian FTZs can temporarily shelve some current approvals.
mid-Dec 2014: 17th round of Sino-US Bilateral Investment Treaty (BIT) negotiations in Beijing. US foreign investment environment is an opportunity for China.
29 Jan 2015: Guidelines on expanding FTZ policies. These will include the negative list, capital account convertibility, further opening of services, supervisory measures aimed at facilitating trade etc.
29 Jan 2015: SFTZ negative list will be further pared down in 2015, states Shanghai mayor Yang Xiong 杨雄. The list was already reduced from 190 to 139 items between 2013-14.
outlook
- draft law and FTZs are preparatory to BITs
- improvement of confidentiality provisions expected
- reporting exemptions possible in future for smaller-scale investments (similar to the US Bureau of Economic Analysis system)
- national security review may evolve into a protectionist tool similar to the Anti-Monopoly Law in 2014
- ambitious drafting likely to be watered down during legislation process, given bureaucratic and industry interests
roundtable
do not fixate on VIEs!
Gao Xiang 高翔 | Huxiu
Draft law discussion should focus, argues lawyer Gao Xiang 高翔, on the negative list, not VIEs. If the list is short, most foreign-owned VIEs will enjoy national treatment. If it covers many industries, domestic VIEs in these sectors may find cooperation with foreign firms restricted.
great leap forward for foreign investment: from approvals to information reporting
Ren Qing 任清 | Caixin
The real highlight, maintains lawyer Ren Qing 任清, is the information reporting system.Use of a reporting system, instead of the SFTZ filing system, indicates further relaxation. It covers all foreign investments, will be used by all related state departments, and has the authority to penalise non-compliance.
plan to expand FTZ was expected
Song Weiping 宋薇萍 | Shanghai Securities News
FTZ pilot policies should be categorised (government supervision, investment management, trade facilitation etc) before they are expanded, argues Zhao Xiaolei 赵晓雷 Shanghai University for Finance and Economics. Programs should also be split into those suitable for national expansion, and those fitting Special Customs Supervision Zones.
BIT negotiations picking up the pace
staff reporter 该报记者 | Commercial News
Sino-US BIT negotiations on the negative list topic will re-launch in 2015. Since both sides need this treaty, argues Zhou Shijian 周世俭 Tsinghua University, negotiations can proceed quickly. China needs US advanced technology, leading R&D, and its large consumer market. The US needs China’s abundant cash and forex reserves.
Long Yongtu 龙永图 | former WTO negotiator
Retired MofCOM vice minister, Long remains influential on China's trade policy arguing for fostering professional domestic services (legal, consulting, accounting) to support domestic firms going global and rebalancing state-business relations to attract more foreign investment. On BIT negotiations he admits to US criticisms over China’s extensive negative list requirements, yet argues China needs time to open restricted areas.
Zhao Xiaolei 赵晓雷 | Shanghai University for Finance and Economics
Head of the SUFE Finance Research Institute, Zhao is an expert on the city’s economic, financial and reform issues. A prominent policy commentator, he specialises in SFTZ issues arguing the pilot is a genuine testing ground for institutional innovation unlike Special Economic Zones (SEZs) which were a starting point for market-oriented reforms. He recommends bringing the SFTZ negative list in line with TIP and TPP requirements as well as using it as a breakthrough point in prompting further reform via opening.
Ren Qing 任清 | lawyer
A partner at Zhonglun law firm, Ren specialises in international trade, foreign investment and anti-monopoly. He argues for greater state protection of overseas investments and opening in line with TPP requirements. A former MofCOM Treaty and Law Department officer, he was in charge of drafting legislation and revisions to domestic laws to comply with international treaties.