The draft of the foreign investment law is to be presented to the country’s top legislature for approval on March 15, and no one should underestimate its importance.
The three existing laws related to foreign investment — the law on Chinese-foreign equity joint ventures, on Chinese-foreign contractual joint ventures and on wholly foreign-owned enterprises — have played their roles in promoting China’s opening-up in the past four decades. It would have been unimaginable for China to receive the most foreign direct investment for 26 consecutive years since 1992 among developing countries without these three laws.
However, with the size of the Chinese economy rising to be the world’s second-largest, the rise in its labor costs, the country’s much higher environmental requirements and the urgent need for higher quality economic growth and upgraded high-tech industries, opening the door wider to foreign investment has become a necessity.
The pre-entry national treatment plus negative list as stipulated in Article 4 of the draft law suggests that almost all restrictions on foreign investment in the previous three laws will be scrapped except for those on the negative list.
And Article 9 of the draft stipulates that government policies supporting the development of enterprises apply to all foreign-invested companies, which are also eligible to compete for government procurement contracts.
No wonder that promotion of foreign investment has been interpreted as the gist of the law.
To be exact, the law is meant to create a fair and even competition environment for foreign companies to compete with their Chinese counterparts.
The draft also has detailed stipulations about the protection of intellectual property, protection of the legal rights and interests of foreign companies and prohibition of forced technology transfer.
If domestic enterprises, either private ones or State-owned ones, needed special care for their growth in the early years of reform and opening-up, they are no longer infants and the special care they received in the past, if maintained, would only spoil them. They need more competition for them to grow stronger.
This is what the new law for foreign investment means to the development of China’s domestic enterprises. This should also help explain why it means a great deal for China to open its door wider. It must subject its domestic enterprises to real and fair competition.
When globalization is on the ebb with protectionism and unilateralism on the rise, this new law on foreign investment is another manifestation of the country’s commitment to the world that it will do whatever it can to throw its weight behind globalization and if possible take the wind out of the sails of anti-globalization. Not the least because the country believes that an open and inclusive world economy is in the interests of all countries.