China Economy

EU Chamber says China's new foreign investment law is 'surprisingly accommodating'

Key Points
  • Joerg Wuttke, president of the European Union Chamber of Commerce in China, gives a positive take on a preliminary look at China's new foreign investment law.
  • The law is set to take effect Jan. 1 and aims to address complaints about forced technology transfer and lack of intellectual property protection.
  • Wuttke also pointed out that China would like to attract more foreign investment as its economic growth slows.
Workers install a Nike logo lamp outside the Wukesong Arena in Beijing, August 28, 2019.
Tingshu Wang | Reuters

BEIJING — At least on paper, the Chinese government is trying to show how serious it is about improving the local business environment for foreign companies.

Joerg Wuttke, president of the European Union Chamber of Commerce in China, told reporters Friday that based on a preliminary look at the country's new foreign investment law, "It is surprisingly accommodating to concerns that we had."

The law, set to take effect Jan. 1, puts a strong emphasis on preventing Chinese entities from forcing foreign companies to transfer valuable technology in order to do business in China, Wuttke said. It also improves protection of trade secrets, he added.

If fully implemented, these aspects of the law would address two major business complaints that have been cited in the trade dispute between China and the U.S.

Concerns about the draft

The U.S.-China Business Council also said it received a copy of the "Draft Implementing Regulations of the Foreign Investment Law."

It's a good signal that China has approached a number of foreign companies and associations for consultations on the review process, and the document contains a number of encouraging areas, Jake Parker, senior vice president at the U.S.-China Business Council, said in an email.

However, he listed some points of concern as the draft:

  • falls short of specifying what kinds of trade secret disclosures will be prohibited, and clarifying which kinds of administrative departments the provisions on technology transfer may apply to.
  • is vague on how communication channels between government agencies and foreign entities will be managed, and how feedback will be incorporated.
  • contains language that is unlikely to be enough to allow equal participation for foreign companies.
  • still does not address how foreign companies can gain fairer competition with domestic players in government procurement tenders.
  • raises some concerns that "national interests" and "social public interests" are ill defined in this context.

Parker said that in the council's comments to the Chinese government on the draft, they would address issues such as defining "national interests“ and call for a longer, 60-day comment period for all regulations.

We are entering a phase of economic headwinds. These matters (improving environment for foreign business in China) are of great importance to make sure foreign investors find China attractive.
Joerg Wuttke
European Union Chamber of Commerce in China, president

When the foreign investment law was passed at an annual congress in March, some business leaders worried that the new rules were turned into law too quickly — just about three months since the first draft — and contained vague wording that could make enforcement difficult.

Other analysts point out that the challenges for foreign business operations in China center on longstanding issues of state control, which has actually increased after some effort to reduce it.

"Not only does the Chinese state continue support beyond any reasonable limit, they often balk when foreign buyers want to come to the rescue. The 'not for sale' sign on Chinese companies is a pillar in the edifice of a state-directed economic system," Scott Kennedy, senior adviser at the Center for Strategic and International Studies, and Daniel H. Rosen, founding partner of the Rhodium Group, wrote in an Oct. 10 note.

Although the foreign investment law was passed in March, the Chinese government has still been soliciting comments on its implementation.

The EU Chamber received a review copy of the implementation rules on Oct. 10 and has 20 days to respond, according to Wuttke. He noted Friday that there is no penalty clause included so far in the implementation, which could indicate the law is incomplete.

This past weekend, closed-door meetings with business leaders about the law were also scheduled with the Ministry of Commerce, General Administration of Customs and the State Administration of Market Supervision at the Qingdao Multinationals Summit in Shandong province, according to the Commerce Ministry.

Foreign investment could help China's economy

The Chinese government has reasons other than appeasing trade tensions with the U.S. to improve the business environment for foreign entities. Investment from abroad brings needed capital and jobs into the country, and can also help Chinese industry standards come more in line with globally recognized ones. Notably, Chinese authorities have made some announcements in the last few weeks about removing foreign investment limits in parts of the local financial industry.

"We are entering a phase of economic headwinds. These matters (improving environment for foreign business in China) are of great importance to make sure foreign investors find China attractive," Wuttke said.

"They are not in a position to throw major money at the economy as we speak," he said.

Official, although frequently doubted, gross domestic product figures released Friday showed China's economy grew at 6% in the third quarter, the slowest pace in nearly 30 years.

Foreign direct investment into mainland China rose 6.5% in yuan terms in the first three quarters of the year, or 2.9% in U.S. dollar terms to $100.78 billion, the Ministry of Commerce said last week. The press release named Hong Kong, Macau, Singapore, South Korea and Japan as major sources of investment. The statement didn't mention the U.S. or EU.

For all of 2018, investment from the U.S. rose 7.7% and that from Germany rose 79.3%, according to the Commerce Ministry.

Correction: This story has been corrected to reflect that Joerg Wuttke said: "It is surprisingly accommodating to concerns that we had." It has also been updated to clarify that the EU Chamber received a draft of the implementation rules for the new foreign investment law.