New law opens door wider on investment

Unified provisions expected to greatly stimulate foreign enterprises' interest

When the new Foreign Investment Law took effect on Jan 1, Shanghai Zunyun Consulting and Management Co Ltd became the first company in the city to receive the foreign-invested business license.

Although the consulting company is jointly set up by three partners from China and the United States, it is no longer defined as a Chinese-foreign venture. This definition, as well as the term Chinese-foreign cooperative entity, have become obsolete under the Foreign Investment Law. The new definition, as the Zunyun business license shows, is "foreign-invested, not wholly foreign-owned".

Passed by the second session of the 13th National People's Congress on March 15 last year, the Foreign Investment Law has unified provisions for the entry, promotion, protection and management of foreign investment. It aims to improve the transparency of foreign investment policies and ensure that foreign-invested enterprises participate in market competition on an equal basis.

Zunyun's deputy general-manager, Xu Jin, said the company's partners had planned to set up a foreign-invested consulting firm in Shanghai for a long time. The purpose is to introduce foreign investors to Shanghai by leveraging the resources of Chinese and US partners. As soon as the Foreign Investment Law was passed, the partners put the establishment of the consultancy at the top of their agenda.

"We thought we would get the business license after Spring Festival, which is in late January (this year). But everything went so smoothly that we have obtained the license ahead of our plan. With that, we can enter the Chinese market at a faster pace," said Xu.

Under previous laws, according to Wu Ying, deputy head of the registration department of the Shanghai Administration for Market Regulation, Chinese natural persons (a legal term referring to individuals) were not allowed to directly invest in what then were known as Chinese-foreign joint ventures or Chinese-foreign cooperative entities.

Guo Rui, senior partner of All Bright Law Offices, the agent for Zunyun's case, said that before the Foreign Investment Law was enacted, partners used a roundabout way to form a joint venture in China. The Chinese partner would set up a company in China, while the foreign partner would set up another company overseas. The two separate companies would later set up a joint venture in China.

"Although such a practice sounds simple theoretically, the two original companies had to reach a certain operation scale under previous laws and regulations. Companies would feel pressure regarding the cost in time and labor," he said.

But with the new Foreign Investment Law, Chinese natural persons are directly allowed as investors in foreign-invested companies.

Wu of the Shanghai Administration for Market Regulation said the new law will greatly stimulate investment enthusiasm and inject more vitality into the market.

Chen Xuejun, the director of the Shanghai Administration for Market Regulation, said that Chinese and international investors have been working more closely over the past few years. Public information showed that more than 91,000 foreign-invested companies have been established in Shanghai, with the registration capital amounting to more than $640 billion.

By the end of November, Shanghai had attracted a total of 6,168 new foreign-invested projects, up 29.3 percent from a year earlier. The amount of contractual foreign capital increased 14.6 percent year-on-year to more than $45.9 billion.

Shanghai's achievement is a snapshot of China's efforts to improve its business environment for foreign investors. The shortened negative list (the list of industries and business sectors where foreign investment is either prohibited or restricted); the change from an approval to a registration mechanism for foreign investment; and the new Foreign Investment Law have all helped to improve the country's business environment, which will attract more foreign investment, said Yan Haifeng, the dean of the school of business at East China University of Science and Technology.

"The Foreign Investment Law will facilitate investment at a higher level," he said. "With this, China will build and complete the mechanism to advance foreign investment. A stable, transparent, predictable and equally competitive market environment will thus be provided. The law will also pro-vide the legal groundwork and institutional guarantees for the market environment."

Multinational companies applauded the new law.

Chen Yudong, president and CEO of Bosch China, said foreign-invested companies will now have an equal voice in setting domestic industrial standards under the Foreign Investment Law.

Fabrice Megarbane, president and CEO of L'Oreal China, said the development and implementation of the Foreign Investment Law will provide legal protection of the legitimate rights and interests of foreign businesses in China.

Yin Zheng, the president of Schneider Electric China, said the new law is a milestone for China's opening-up, which will enter a new phase featuring systematic opening-up. The Chinese market will better integrate into the international market, while multinational companies' global expansion will greatly benefit, he said.

"The protection of intellectual property rights, which is stressed in the new law, will create a fairer market environment for multinational companies," Yin added. "Therefore, Schneider Electric will increase our research and development investment in China by 50 percent in the next three years."