The Chinese Government protects, in accordance with the law, the investment of foreign joint venturers, the profits due them and their other lawful rights and interests in a joint venture, pursuant to the agreement, contract and articles of association approved by the Chinese Government. It is currently not clear whether the Foreign Investment Law will also abolish currently applicable minimum capital requirements for joint ventures and wholly foreign owned enterprises, for example on the basis of the total investment amount, or will also abolish current restrictions of cross-border financing. "[3], National Development and Reform Commission, Ministry of Commerce of the People's Republic of China, "Foreign Investment Law of the People's Republic of China", "La Chine adopte la loi sur les investissements étrangers", "EU Chamber says China's new foreign investment law is "surprisingly accommodating, https://en.wikipedia.org/w/index.php?title=Foreign_Investment_Law_of_the_People%27s_Republic_of_China&oldid=975742654, Articles needing additional categories from November 2019, Creative Commons Attribution-ShareAlike License, This page was last edited on 30 August 2020, at 05:01. One method of entering the market is by creating a joint venture (JV) between a foreign entity and a Chinese entity. Examples include: Above examples show that China did not just start legal unifications in 2019, but has been in a respective process already for many years. The purpose of the Joint Venture Law is to attract By Dan Harris on August 28, 2014. JV Formation in China China is an attractive and lucrative market to enter into, but many are not aware of the challenges and risks involved in entering the market. The law was adopted by the National People's Congress on March 15, 2019 and came into effect on January 1, 2020. As China becomes one of the world's top recipients of FDI, with some 960,000 foreign-invested enterprises and over 2.1 trillion US dollars of accumulated FDI by the end of 2018, the legal framework for foreign investment needed to be updated in order for further reform and opening up.[2]. Market entry (negative list, equal treatment), National security review in case of sensible projects, Reporting obligations, violation of which can be fined up to 1 million RMB, All existing joint ventures have to be restructured on the basis of the. It is accompanied by a detailed drafting note. It is also still open weather current M&A related regulations or the regulations governing holding companies in China will be abolished or revised. At the same time, the current Equity Joint Venture Law, Contractual Joint Venture Law and the Wholly Foreign Owned Enterprise Law are all abolished. A first draft contained approximately 170 rather detailed articles. One of the key components of the reform from a practical perspective is the equal treatment of shareholders regarding the internal organization of companies. It seems at least partially redundant to emphasize foreign investors’ protection of intellectual property, involvement in formulation of standards, the prohibition of forced technology transfers, national treatment principles (for example also in case of public bidding), as well as available administrative legal remedies. Lubman, Institutional Changes in Trade with China, in Doing Bus. The actual implementation of these laws was often much more problematic in practice. Emphasizing the principles again in the Foreign Investment Law, will not necessarily change the practice, especially also since certain explicit references to other laws might even lead to currently unforeseen future legal restrictions. "[2], Vivian Jiang, vice chair of Deloitte China, said the Law sends the signal of "greater transparency", and will "boost Chinese market's appeal to foreign capital. ${name} sign out Services In contrast, Chinese-invested stock companies and equity based LLCs, had their legal basis in a different Company Law since 1993. This lack of legal flexibility for instance also regarding equity transfer related preemptive purchase rights, or regarding dividend distributions, sometimes lead to complex offshore structures, e.g. 16 The parties shall stipulate in the joint venture contract (based on the production and operation requirements of the venture) the duration of the investment to be made and the co-operation conditions to be contributed. Keep a step ahead of your key competitors and benchmark against them. In all other areas, the joint venture partners will be free to decide and agree on different majority rules and more flexible structures. Foreign investment was mainly governed by theSino-foreign Equity Joint Ventures Law, Wholly Foreign-owned Enterprise Law and Sino-foreign Cooperative Joint Ventures Law (collectively the “Initial Foreign Investment Laws”). The law contains general principles which are currently being presented as positive developments of China’s further opening up. • The government establishes a safety review system for any foreign investment affecting or having the possibility to affect national security. Posted in Basics of China Business Law, Legal News. Ekso Bionics Announces CFIUS Determination Regarding China Joint Venture RICHMOND, Calif., May 20, 2020 (GLOBE NEWSWIRE) -- Ekso Bionics … In 1986, the Wholly foreign-owned Enterprise Law was added, followed by the Contractual Joint Venture Law in 1988. Joint ventures currently in the negotiation stage should already now consider potential changes and additions in their contracts and articles of association to reflect the future law, if a delayed establishment until 2020 is not feasible. Posted in Basics of China Business Law. The Foreign Investment Law[1] is a law of the People's Republic of China governing foreign direct investment in China. Article 2 The Chinese Government protects, according to law, the investment of foreign joint ventures, the profits due them and their other lawful rights and interests in an equity joint venture, pursuant to the agreement, contract and articles of association approved by the Chinese Government. There are also numerous sets of detailed regulations. Joint Venture Law, supra note 1, art. The finally promulgated law has only 42 articles and is of much more general nature than the first draft. US policymakers have aired their grievances over Chinese foreign investment policy. The Foreign Investment Law has been widely promoted as a framework that will emphasize equal national treatment of foreign investment, putting foreign investors on equal footing with domestic investors in the Chinese market and giving them equal protections. In the middle of the 1990s, China started unifying the treatment of foreign and Chinese legal subjects and their investments. In certain sensitive economic sectors, wholly foreign-owned enterprises (WFOEs) are not permitted. Also older wholly foreign owned enterprises established prior to 2006, with current structures still in analogy to joint ventures need to restructure accordingly. But from January 1, 2020, the new law applies already mandatorily to all newly established companies. Understand your clients’ strategies and the most pressing issues they are facing. When done right, China joint ventures do share risk. Since then, the legislator decided in favor of a much leaner alternative. Equity joint venture (EJV) vs Cooperative joint venture (CJV) An EJV(Equity Joint Venture) Equity joint ventures are one of the most common ways that foreign companies enter the Chinese market.. It’s probably a preferred choice for the Chinese government and the local partners in China.. Usually, an EJV’s business structure is a separate limited liability company (LLC). Only a year later, the first Equity Joint Venture Law entered into effect, which - with certain amendments - is still effective today. • The competent departments for commerce (Ministry of Commerce) and for investment (National Development and Reform Commission) are delegated major responsibility to promote, protect and manage foreign investment. For a joint venture with a Chinese legal person status, unlike the equity joint venture, there is no minimum investment made by the foreign party. • The government is not to expropriate any investment made by foreign investors; Under special circumstances, the government may expropriate or requisition an investment made by foreign investors for public interests in accordance with the law. China’s economy remains closed to foreign businesses in many industries and part of that closure involves requiring foreign companies enter into the Chinese market only via a joint venture. 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