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The Legal System for Foreign Investment

Investment Protection

 

· INSIGHTS

§ Expropriation and Compensation

According to the Foreign Investment Law: The State does not expropriate any investment made by foreign investors. In special cases where expropriation is necessary for the public interest, the State may expropriate or requisition the investments of foreign parties in accordance with the law. Such expropriation or requisition shall be made pursuant to statutory procedures, and fair and reasonable compensation given in a timely manner.

The Implementing Regulations further clarify that for the expropriation of foreign parties’ investments conducted by the State for the public interest, legal procedures must be followed in a nondiscriminatory manner, and timely compensation must be made based on the investment’s market value. Foreign investors who are dissatisfied with the expropriation or requisition decision may apply for administrative reconsideration or file an administrative lawsuit in accordance with the law.

§ Technical Cooperation

Technical cooperation is an essential mode of cooperation between foreign-invested enterprises and its partners. It plays an important role in releasing the full potential of their respective advantages to achieve the goals of investment.

According to the Foreign Investment Law and its Implementing Regulations, China encourages foreign investors to engage in technical cooperation with its partners on a voluntary basis by following business rules. Conditions for technical cooperation should be determined by all investment parties through negotiation and on an equal footing. No administrative department (including organizations authorized by the law or regulations to manage public affairs) or its staff member shall force (or compel in disguised forms) foreign investors or foreign-invested enterprises to transfer technology by means of administrative licensing, administrative inspection, administrative punishment, administrative compulsion, or any other administrative means.

It is stipulated in the second paragraph of Article 31 of the Administrative License Law of the People’s Republic of China that administrative organs and the staff thereof shall not take the transfer of technology as a condition for obtaining an administrative license. It is prohibited to either directly or indirectly request technology transfer in the process of administrative licensing.

§ Commitment from Local Governments

Local people's governments at all levels and relevant departments shall strictly keep policy commitments made to foreign investors and foreign-invested enterprises and perform all contracts entered into in accordance with the law (“policy commitments” refer to written commitments made by local people's governments at all levels and relevant departments within their statutory authority regarding the supporting policies, preferential treatment or conveniences that foreign investors and foreign-invested enterprises can enjoy in their respective regions). Breach of contract is prohibited on the grounds of adjustment of administrative region, change of government, adjustment of institution or functions, or replacement of the relevant persons in charge. If government departments make alterations to policy commitments or contractual agreements out of the necessity of national and social interests, they must proceed in accordance with statutory authority and procedures, and provide timely and fair compensation for any losses suffered by foreign investors or foreign-invested enterprises in accordance with the law.

§ Complaint Channels for Foreign-invested Enterprises

China, in accordance with Foreign Investment Law and its Implementing Regulations, has established a mechanism for foreign-invested enterprises’ complaints and settlements to handle problems raised by foreign-invested enterprises or their investors more promptly and to coordinate and improve relevant policies and measures.

Should a foreign-invested enterprise or foreign investor deem any administrative act by an administrative organ or the staff thereof to have infringed upon its legitimate rights and interests, it may seek mediation and resolution through the complaint mechanism for foreign-invested enterprises or report to the relevant departments through other legal channels, and thereby apply for administrative reconsideration or file administrative litigation pursuant to the law. No unit or individual may suppress or retaliate against the act of filing complaint.

Competent commercial departments and relevant departments of the State Council have established the inter-ministerial joint conference system for the complaints of foreign-invested enterprises to coordinate and facilitate the handling of complaints of foreign-invested enterprises at the central level, and guide and supervise the complaint handling by local authorities.

According to the Rules on Handling Complaints of Foreign-Invested Enterprises, foreign-invested enterprises or their investors may complain to those departments or institutions designated by the Ministry of Commerce and the local people's governments at and above the county level for accepting complaints from foreign-invested enterprises.

The Ministry of Commerce has established a National Center for Complaints of Foreign-Invested Enterprises (hereinafter referred to as the “National Center”), which is responsible for handling such complaints as: when the matter is related to the administrative actions of relevant departments under the State Council, provincial people's governments, or the staff thereof; when suggestions are made for relevant departments under the State Council and provincial people's governments to improve relevant policies and measures; when the matter has a significant national or international impact and may be handled by the National Center as it deems fit.

All local governments have established institutions that handle the complaints of foreign-invested enterprises, which shall perform due functions according to responsibilities assigned to different levels.

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