PW-Partner’s Express: Advantages of the new “Foreign Investment Law” to protect foreign investments

  • 17 Mar 2019 11:42 AM
    Message # 7228036

    PW-Partners have particularly paid attention to the regulations related to protection of foreign investors, which is regulated from Article 20 to 26. And our comments are: 

    Regarding Article 20, under special circumstances, the state may, for the public interest, expropriate or requisition the investment of foreign investors in accordance with the law. Expropriation and requisition shall be conducted in accordance with legal procedures “with fair and reasonable” compensation shall be made “in a timely manner”.

    Regarding Article 21, the foreign investor's capital contribution, profits, capital gains, income from asset disposal, royalties from intellectual property rights, lawfully obtained compensation, and liquidation income within the territory of China may be freely remitted in or out of China in RMB or foreign currency in accordance with the law. This article answers the concerns by foreign investors of the remittance issue of investment income out of China arising from national foreign exchange policy. 

    In terms of technology transfer, which is another major concern of foreign invested enterprises, article 22 explicitly prohibits the compulsory transfer of technology by administrative measure. As the Foreign Investment Law is a fundamental law and other administrative law shall not conflict with it, all provisions of local administrative laws and regulations under its hierarchy that oblige technology transfer will lose their legal effect.

    Article 23 expressly stipulates the confidential responsibility of the administrative government to the foreign-invested enterprises’ commercial secrets.

    Article 24 not only emphasizes the national treatment of investment, but also points out the national treatment of “exit” (enterprise closure) of foreign enterprises, which provide practical guideline for foreign investors who make the closure decision because of business consideration.

    Article 25 has solved the problem of not-conforming to the commitment of investment promotion policy offered by local government, expressly state that foreign investors may obtain corresponding compensation for losses on the basis of the contract concluded in written form.

    In practice, the complaint mechanism of foreign-invested enterprises has always existed. However, Article 26 completely solves the problem that there is no other relief channel for foreign-invested enterprises when the complaint is not settled. According to Article 26, administrative review and administrative litigation will provide legal support for the enterprises to settle their complaints in accordance with the law.

    Article 27 will change the situation in which associations of foreign-invested enterprises are generally advocated by the government. The existing foreign investment association will be completely decoupled from the government based on this regulation. It can also be expected that in the future foreign investors or foreign-invested enterprises will be able collaborate legally by private sectors to make a collective voice.

    The foregoing comments are based on the legal practice of PW-Partners attorneys in respect of foreign services. Final commercial decisions shall be subject to actual situation.

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