The European Union Chamber of Commerce in China (European Chamber) has distributed a press release detailing its stance on the new Foreign Investment Law (FIL) which was approved by the National People’s Congress (NPC) on March 15, 2019 and will enter into force on January 1, 2020. Following is the European Chamber’s Press Release:

The final version of the Foreign Investment Law (FIL) took into account some of the European Union Chamber of Commerce in China’s (European Chamber’s) comments (recommendations for changes to articles 4, 9, 16, 23, 24 and 26), indicating that although there were irregularities with the review and consultation periods, feedback has at least been given a degree of consideration.

However, it is concerning that Article 40 was kept in the final draft. This is of particular concern to the European business community, as this clause allows for political issues to influence investor-state relations, and gives China power to take unilateral action against trading and investment partners based on a principle of perceived negative reciprocity. Its vague wording further adds to the legal uncertainty that the law creates for foreign companies. Conflicts and disagreements should be handled through established multilateral institutions like the WTO, or under the conditions of previously arranged agreements between China and any specific partner, and not through unilateral retaliatory measures.

The Chamber also maintains its original stance that there should be no legal distinction between foreign and local companies, unless it is to provide exceptions for legitimate reasons such as specific national security concerns. At the same time, it recognizes that the FIL plays an important role in formalizing the legal foundation for the shift from the old foreign investment catalogue to the new-market access system based on a negative list, which is hoped will provide increased certainty for European businesses.

Although many of the policy goals highlighted in the FIL appear in other pieces of legislation and have been mentioned in formal speeches, raising them to the level of a law is a positive development, as it increases the chances that they will become a reality. Full implementation of the law will now require both extensive follow-through from the administrative authorities at all levels of government, and full support of the legal system in cases where protections found within the FIL are not respected.

“More than anything else, foreign companies want equal treatment and opportunities,” said Mats Harborn, president of the European Union Chamber of Commerce in China. “While not all of our concerns were addressed in this law, it is time to move forward. We will closely monitor the FIL’s implementation to ensure that it is fully respected at all levels of government and in all corners of this country.”