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The Legal System for Foreign Investment

Investment Management

· INSIGHTS

§ Pre-establishment National Treatment plus Negative List Management

China is implementing a management system of “pre-establishment national treatment plus a negative list” for foreign investment in accordance with the Foreign Investment Law.

"Pre-establishment national treatment" means foreign investors and investments are treated no less favorably than domestic investors and investments during the establishment stage.

The "Negative List" refers to the special entry management measures for foreign investment in specific fields stipulated by the State. Foreign investors are not allowed to invest in any field which the negative list deems “forbidden” to foreign investors. For those fields that the negative list merely “restricts” from foreign investment access, foreign investors must meet the conditions set out by the negative list. Fields not included on the negative list for foreign investment access shall be managed in accordance with the principle of consistent treatment for domestic and foreign investment.

The latest version of the Special Administrative Measures (Negative List) for Foreign Investment Access (2020 Edition) (hereinafter referred to as the “Negative List 2020 Edition”) was released on June 24, 2020, and came into force on July 23, 2020. The Negative List 2020 Edition lists 33 fields subject to special administrative measures for foreign investment. In addition to the Negative List 2020 Edition for nationwide application, the National Development and Reform Commission and the Ministry of Commerce also issued the Special Administrative Measures (Negative List) for Foreign Investment Access in Pilot Free Trade Zones (2020 Edition) on the same day. This negative list reduces entries from 37 to 30. Experimental areas continue to be put into operation in pilot free trade zones, where foreign investors are allowed to invest in Traditional Chinese Medicine (TCM) decoctions and establish wholly foreign-owned school-length vocational training institutions. The two negative lists respectively list the industries for which foreign investors are forbidden from investing in China (outside of the pilot free trade zones) as well as the industries for which investment is forbidden within pilot free trade zones, industries for which investment is restricted, and the corresponding special administrative measures (including requirements for equity and senior executives). Please check the original negative lists for these details.

In addition to the negative list for foreign investment access, foreign investors and foreign-invested companies should also follow the Negative List of Market Access (2019 Edition). In this list, the State Council clearly lists the industries, fields, businesses, etc. that are forbidden or restricted from investing or operating in China. Governments at all levels have adopted corresponding law-based administrative measures. The list contains two categories: prohibited and licensed. For prohibited areas, market entities are not allowed to enter, administrative organs are not allowed to approve and review, and relevant procedures are not allowed to progress. For licensed areas, including market entities must apply in accordance with qualification requirements and procedures, technical standards and licensing requirements, and administrative organs are to make decisions on whether to grant access or not (in accordance with the law and regulations), or market entities shall gain access in compliance with the access conditions and methods stipulated by governments. For industries, fields, and businesses not included on the negative list of market access, all kinds of market entities shall be granted entry on an equal footing and in accordance with the law. If project approval and filing are required, they shall be carried out in accordance with relevant national regulations.

§ Foreign Investment Project Management

The National Development and Reform Commission formulates and implements macroeconomic development strategies and plans to coordinate and supervise the development of the national economy. If a foreign investment involves a fixed asset investment project, it needs to go through investment project approval and filing.

§ National Security Review

The Foreign Investment Law stipulates that foreign investors and foreign-invested enterprises engaged in investment activities within Chinese territory shall abide by Chinese laws and regulations and shall not jeopardize the national security and public interests of the People’s Republic of China. China has established a security review system for foreign investment and conducts security review on any foreign investment that does or may affect the national security of China. The results of the security review arrived at in accordance with the law shall be considered as the final decision.

§ Information Reporting System

China has established an information reporting system for foreign investment. Foreign investors or foreign-invested enterprises shall submit investment information to the competent commercial departments via the enterprise registration system and the national enterprise credit information publicity system. Investment information submitted by foreign investors or foreign-invested enterprises must be authentic, accurate, and complete.

Supporting documents including the Measures for Reporting Foreign Investment Information, the Announcement on Matters Related to the Information Report on Foreign Investment and the 2019 Announcement on Launching the Annual Report on Foreign Investment Information Report came into effect on January 1, 2020. Foreign investors and foreign-invested enterprises shall submit the initial report, any reports of modification or cancellation, and the annual report to the competent commercial department in accordance with the requirements of the above-mentioned documents.

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