The Foreign Investment Law of the People’s Republic of China will come into force on January 1, 2020

The Foreign Investment Law of the People’s Republic of China (the “Law”), as adopted at the 2nd Session of the Thirteenth National People’s Congress of the People’s Republic of China on March 15, 2019, is hereby issued, and shall come into force on January 1, 2020, which will replace the “Law on Foreign-funded Enterprises”, “Law on Sino-Foreign Cooperation Joint Ventures”, and “Law on Sino foreign Equity Joint Ventures”(the “Three Laws”).

The following content deserves the attention of foreign-invested companies.

1. The approval system would be abolished, and the negative list system shall be implemented

Article 4 prescribes that the State adheres to an administrative system of pre-establishment national treatment, plus a negative list, for foreign investment. All the projects listed in the negative list shall be reviewed; otherwise, the other projects could enjoy the national treatment.

2. More investment behaviors have been listed

Despite the establishment of a foreign-invested enterprise, the investment behaviors shall include, 1) a foreign investor invests in a new construction project, alone or jointly with any other investor; 2) a foreign investor acquires any shares, equities, portion of property or other similar interest in an enterprise within China by means of merger or acquisition.

3. To protect the IPR of foreign-invested enterprises

(1) The State protects the IPR of foreign investors and foreign-invested enterprises, protects the legitimate rights and interests of IPR holders and related rights holders. In addition, the State encourages technical cooperation based on the voluntariness principle and commercial rules in the process of foreign investment. The conditions for technical cooperation are determined by equal negotiation between the parties to the investment inaccordance with the principle of fairness. Administrative agencies and their staff are prohibited to use administrative means to force any technology transfer.

(2) The administrative organs and their staff shall keep confidential the business secrets known to them, of foreign investors and foreign-invested enterprises during the performance of their duties, and shall not disclose or illegally provide them to others.

4. A 5 years transition period

All the foreign invested companies are established in accordance with the Three Laws, and there are some special requirements, such as, the supreme authority of a Sino-foreign equity joint venture is the board of director, and so on. Upon the implementation of the Law, the foreign invested companies shall be established and managed in accordance with the “Company Law”; however, there is a 5 years transition period for the existing foreign invested companies to adjust its organization. It is recommended to foreign invested companies to follow up with the incoming policies.