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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 264  November 4, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Alexa Busser ([log in to unmask])
*China’s new Foreign Investment Law: deeper reform and more trust are
* <#m_1491550473855069841_x__edn1>
Yun Zheng** <#m_1491550473855069841_x__edn2>

On March 15, 2019, China’s new Foreign Investment Law
was passed, creating a general framework for FDI in China.[1]
<#m_1491550473855069841_x__edn3> It marks a milestone in a 40-year policy
process, through which China has opened up to the outside world, while
incrementally adopting international standards to drive domestic reform. It
also signals a new stage of increasingly difficult and substantive reforms.

Notwithstanding the current criticism of globalization, the integration of
global value chains has significant implications for the international
economic order. China’s investment law endeavors to establish an open
market to attract and promote the free flow of resources, with Pilot Free
Trade Zones serving as experimental precursors. Three features are

   - Investment facilitation is the first step toward improving the
   domestic investment environment. The Law provides for a transparent law-
   and standard-setting process, entitling the participation of foreign
   investors; mandates a system enabling consultations regarding all
   investment law and policy matters; simplifies administrative procedures for
   FDI (e.g., permissions, licensing); and provides for the establishment of
   bilateral or multilateral cooperative institutions to enhance the
   international exchange of best practices for FDI, all of which reflect the
   principles of the WTO’s Joint Ministerial Statement on Investment
   Facilitation for Development
   This is supported by China’s general policy to streamline administrative
   procedures, delegate powers and improve regulations and services. As
   investment facilitation does not address market access, standards of
   treatment and dispute settlement, it does not impinge on the country’s
   sovereignty and is therefore a rather low-hanging fruit for enhancing the
   doing-business environment.
   - The Law grants foreign investors pre-establishment national treatment,
   with Special Management Measures for Foreign Investment Access
   (negative list) as the only exception. This mechanism changes China’s FDI
   regulatory regime substantially. The negative list is the result of the
   Pilot Free Trade Zones experimentation underway since 2013 and the exercise
   of evaluating the potential risks of an open investment market, while
   responding to foreign investors’ concerns regarding particular issues such
   as forced local partners. In its latest version, the list (which replaces
   China’s long-standing Catalogue of Industry Guidance for Foreign
   lays out the market-opening timelines for automobile manufacture and
   finance industries, and eliminates the shareholding ratio requirements for
   sectors such as the power grid and railway network infrastructure, as well
   as aircraft design, manufacture and maintenance. Although the list will
   continue to become shorter (thus opening more industries), its current
   implementation is insufficient, as the list adopts China’s Industrial
   which differs from international practices and might cause confusion for
   foreign investors; the listed special management measures fail clearly to
   refer to specific regulatory rules and thus lack transparency; and once an
   investment is established, doing business in certain industries remains
   subject to licenses or permissions. A more transparent, precise and
   integrated regulatory system is needed so that foreign investors can truly
   enjoy national treatment.
   - Regarding investment protection, however, law and policy makers are
   too eager to please foreign investors, partly because they stretch to
   address issues not properly included in an FDI law. Concerning the
   protection of intellectual property rights, the Law explicitly prohibits
   government officials to force intellectual property transfers or to reveal
   foreign investors’ business secrets acquired in exercising their authority
   to any third party. However, this issue might be better addressed through
   amending the intellectual property law and related mechanisms. The Law also
   provides foreign affiliates with a complaint mechanism, to facilitate
   communication with foreign investors in terms of policy coordination or
   public bodies’ tortious acts. However, enforceable procedures are absent,
   as well as explanations about the relationship between the complaint
   mechanism and existing administrative procedures. The Law touches upon
   issues outside its scope and lacks enforceable mechanisms. This may arouse
   suspicion rather than boost the trust of foreign investors.

The Foreign Investment Law will take effect in January 2020. Detailed
regulations are currently being drafted and reviewed at the national level,
led by the State Council, the Ministry of Commerce and the National
Development and Reform Commission. As provided for in the Law, comments
from foreign investors submitted through the drafting process shall be
taken into account. While this reform process reflects China’s long-term
interests, it faces the immediate difficulty of winning the trust of
international investors.

* <#m_1491550473855069841_x__ednref1> *The Columbia FDI Perspectives are a
forum for public debate. The views expressed by the author(s) do not
reflect the opinions of CCSI or Columbia University or our partners and
supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a peer-reviewed
** <#m_1491550473855069841_x__ednref2> Yun Zheng ([log in to unmask]) is
Lecturer at the School of International Law, Southwest University of
Political Science and Law, and Associate Researcher at the Institute of
Free Trade Zones, Sun Yat-Sen University. The author wishes to thank
Manjiao Chi, Tong Qi and Qinglin Zhang for their useful insights, and is
grateful to Julien Chaisse, Shaun Donnelly and Timothy Stratford for their
helpful peer reviews.
[1] <#m_1491550473855069841_x__ednref3> The Law is based on a longer and
more detailed  draft released by China’s Ministry of Commerce (MOFCOM) in
2015 for public comment
The Law was swiftly passed in reaction to external pressure to put China’s
domestic system in line with international standards, leaving details for
further legislation.
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Yun Zheng, ‘China’s new Foreign Investment Law:
deeper reform and more trust are needed,’ Columbia FDI Perspectives,
No. 264, November 4, 2019. Reprinted with permission from the Columbia
Center on Sustainable Investment (**
<>**).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at **[log in to unmask]*
<[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Alexa Busser, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 263, Fabio Morosini, Nicolás M. Perrone and Michelle R.
   Sanchez-Badin, ‘Strengthening multi-stakeholder cooperation in the
   international investment regime: The Brazilian model,’ October 21, 2019
   - No. 262, Rishi Gulati and Nikos Lavranos, ‘Guaranteeing the
   independence of the judges of a Multilateral Investment Court: A must for
   building the Court’s credibility,’ October 7, 2019
   - No. 261, Zbigniew Zimny, ‘FDI has benefitted the EU members from
   Central and Eastern Europe and can continue to do so,’ September 23, 2019

*All previous FDI Perspectives are available at
<>**. *

*Other relevant CCSI news and announcements*

   - *CCSI is hiring an Economics and Policy Researcher* to help develop
   and execute the Center’s applied research agenda on energy, extractive
   industries and sustainable development. Specifically, the incumbent will
   lead research on the economic and policy frameworks shaping investments in
   oil, mining and gas globally, and their impacts on sustainable development,
   as well as on implications for investment of the energy transition. For
   more details and qualifications, please see our website
   - *On November 7, 2019*, our Fall 2019 International Investment Law and
   Policy Speaker Series, co-sponsored by Baker McKenzie and Arnold &
   Porter, continues with a talk by *Martti Koskenniemi*, Professor of
   International Law, University of Helsinki, Director of Erik Castrén
   Institute of International Law and Human Rights, on “Private Rights and
   International Law: A History of Globalization.” *Please see our website
   more information and the full schedule*.
   - *On November 18, 2019*, CCSI, the Center for Chinese Legal Studies,
   and the Society for Chinese Law (SCL) will co-host a talk by *Angela
   Zhang*, Associate Professor of Law and Director of the Centre for
   Chinese Law, University of Hong Kong, on “The US-China Trade Negotiation: A
   Contract Theory Perspective.” *Please see our website
   for more information.*

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
*Copyright © 2019 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
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Considerations for the WTO Investment-facilitation Discussions, Going
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