Second Draft of Foreign Investment Law: A Summary of Main Changes (UPDATED)

UPDATE (Feb. 18, 2019): The NPCSC apparently did quietly release the full text of the second draft of the Foreign Investment Law on January 29. (So quietly that we could not find the webpage unless we use the website’s search function.) We thank the reader who sent us the link.

We shall start by saying that, no, the NPC Standing Committee (NPCSC) has not released the official second draft of the Foreign Investment Law [外商投资法] that it reviewed in late January. We instead found an unofficial version of the second draft on WeChat—specifically this post by a public account focusing on fiscal and tax issues.[*] After checking this document against state media reports on the second draft, we have every reason to believe that it is authentic.

An English translation of the second draft of the Foreign Investment Law (along with the Chinese original) is now available on China Law Translate.

The second draft does not differ significantly from the first draft released in December 2018. A brief summary of the main changes follows.

  • Scope of foreign investment (art. 2). As defined in the second draft, “foreign investment” no longer covers capital increases by foreign investors (either individually or jointly). In addition, any acquisition by foreign investors of “shares, equity, property shares, or other similar rights in mainland Chinese enterprises” is considered “foreign investment” under the second draft; it is no longer limited to mergers and acquisitions.
  • “Pre-establishment national treatment” defined (art. 4). The second draft explicitly defines that term as “affording foreign investors and their investments treatment no less favorable than that afforded to Chinese domestic investors and their investments, during the establishment, acquisition, expansion, and such other stages of an enterprise.”
  • Expropriation & requisition (art. 20). The second draft authorizes the government to “requisition” [征用]—in addition to “expropriate” [征收]—foreign investment (but only for the public interest). It also requires that compensation be provided “promptly.”
  • Laws governing corporate forms (art. 30). The second draft explicitly provides that the Company Law [公司法] and the Partnership Enterprise Law [合伙企业法] will govern the “organizational forms and institutional frameworks” of foreign-invested enterprises.
  • Anti-monopoly review (art. 32). The second draft provides that foreign investors that “merge with or acquire mainland Chinese enterprises” or otherwise participate in concentration of undertakings must submit to anti-monopoly review under the Anti-Monopoly Law [反垄断法].
  • Penalty for information reporting violations (art. 36). The second draft specifies the penalty for violating the Law’s information reporting requirements: first government-ordered corrections, and if not complied with, then a fine of between 100,000 and 500,000 RMB.

For what it is worth, the NPCSC is still soliciting public comments on the first draft of the Law, through February 24.

[*] The WeChat post listed the NPC’s website as the source of the document, but we could not independently locate it on that website. We tried to ask the account’s operator for instructions, but to no avail.

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