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Understanding China’s new foreign investment legislation

China’s new foreign investment law, which takes effect January 1, 2020, aims to level the playing field between domestic and foreign investors in the country. Delegates at the National People’s Congress (NPC) voted overwhelmingly in favor of the measure in March - just three months after it was introduced. Delegates proposed another version of the law back in 2015.

Important aspects of China’s Foreign Investment Law include:

Some protection for intellectual property, with room for interpretation

Article 22 of the new law states that China will protect the “intellectual property rights of foreign investors and foreign-invested enterprises according to the law.” This is essentially the same as previous laws, including WTO agreements on intellectual property.

However, the text of the intellectual property provision does not expressly prohibit forced technology transfers, a long-standing thorn in many foreign business’s sides. In fact, it seems to leave Chinese firms with the option to demand a technology transfer by stating: “The conditions for technological cooperation in the course of foreign investment are to be negotiated by the various parties to the investment.”

National Security

The Foreign Investment Law also allows China to place investments the government deems to influence national security under “security review.” Any decision made by the State regarding these investments is final.

Some gaps remain

Several provisions included in the original proposal did not appear in the final version, leading some to argue the law does not go far enough to protect foreign investors. Others say that because the new law removes old protections for foreign investors, they will, at best, be treated the same as domestic investors; or in some cases, worse. 

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