The National People's Congress published the Draft Foreign Investment Law on Dec 26, 2018. The draft went through a first reading in December 2018, a second reading in January 2019 and a third reading in March. The top legislature is set to vote on it today.

Once adopted as law, it will become the fundamental law in the foreign investment field. China has been implementing its reform and opening-up policy for over 40 years now. And this draft shows that China welcomes more foreign investors and opening-up. Here, I would like to highlight a few points in the draft that are worth paying attention to.

The redefinition of foreign investment is worth noting. Current foreign investment related laws define foreign enterprises as three types - equity or contractual joint ventures and wholly foreign owned enterprises.

The draft eliminates these categories. So, pursuant to Article 2 of the draft, foreign investment refers to the investment activity conducted by foreign natural persons, corporations, and other organizations directly or indirectly in China, including: investing in new projects, establishing foreign investment entities (FIEs), or increasing investment, either individually or jointly with other investors; obtaining stock shares, stock equity, property shares, and other similar interests in Chinese domestic enterprises through mergers and acquisitions; making investments in the Chinese mainland through other means provided by laws, administrative regulations, or State Council provisions.

As for the variable interest entities in which foreign parties indirectly control domestic companies through contractual means, the draft keeps silent. Therefore, it remains unclear how this issue will be dealt with.

The draft expressly provides for a pre-establishment national treatment and the negative list principle for foreign investment activities. The negative list will be approved or published by the State Council.

Under the new process, FIEs will get equal treatment as domestic enterprises in industries that are not on the negative list. And although foreign investors in the negative list industries must first apply for approval, the point is that the list of restricted industries is getting shorter. And it is foreseen that there will be more industries opened up for foreign investors.

As for IPR protection. Article 22 of the draft stipulates that the Chinese government protects the IPR of foreign investors and FIEs, as well as explicitly prohibits authorities and their staff from forcing technology transfer.

IPR is a very important issue for FIEs when they do business in China. The IPR protection status quo in China is getting better, and we can see that the Chinese government is improving IPR protection measures. For example, last year President Xi Jinping on several occasions - such as the Boao Forum for Asia Annual Conference 2018 - has outlined the importance of IPR protection. In addition, the IP division of the Supreme People's Court was established on Jan 1, 2019. This division is mainly responsible for the second trial and retrial of civil or administrative IP cases.

The draft reinforces the determination of Chinese government to protect IPR, especially the IPR of FIEs.

The draft aims to be the unified foreign investment law. According to Article 41 of the draft, the three main laws currently regulating foreign investment activities - the laws on Chinese-foreign equity joint ventures, wholly foreign-owned enterprises and Chinese-foreign contractual joint ventures - will be abolished when the draft comes into force.

Also, FIEs which have been set up based on the above three foreign investment laws, will have a five-year transition period to perform necessary changes in order to be in compliance with applicable laws.

Compared with the consultation draft of the 2015 version which provided a three-year transition period, the new draft has provided two additional years for foreign enterprises to adapt.

In addition to the above highlights, the draft also address some other key points. For example, the government will establish a foreign investment information reporting system and a national security review process; examine the concentration of undertakings of foreign investors and not expropriate foreign investments except for social and public interests, which will provide FIEs with guidance on future development of foreign investment, as well as require competent authorities to detail related regulations.

As the world's second largest economy, China has always been one of the most attractive investment destinations worldwide. And the draft shows it is pursuing a more opened-up market offering more opportunities.

We are confident that the draft, when it comes into effect as law, will ease the current administrative and regulatory burdens on foreign investment in China; give foreign investors more protection and opportunities and thus further enhance the attractiveness of the Chinese market.

The author is the senior partner at Dewit Law Office and chairman of Belgian-Chinese Chamber of Commerce. 

The author contributed this article to China Watch exclusively. The views expressed do not necessarily reflect those of China Watch.

All rights reserved. Copying or sharing of any content for other than personal use is prohibited without prior written permission.