The 13th National People’s Congress (NPC) has passed the Foreign Investment Law (FIL) which streamlines, reforms and modernises all of China’s foreign direct investment laws and regulations. The FIL has replaced three previous laws governing foreign investment and as such looks to create further transparency and a greater ease of doing business for new foreign investors into China’s substantial economy.
The FIL will level the regulatory playing field between domestic and foreign enterprise and crucially, it will apply to any and all new foreign ventures in China except for a limited number of sectors that will be ring-fenced on a foreign direct investment negative list that is already shrinking. This is crucial as it helps to shift the regulatory burden off the shoulders of potential investors into the Chinese economy.
China is already a world leader in respect of attracting dynamic foreign direct investment and this trend is set to substantially accelerate after the FIL is fully implemented at the beginning of 2020. On the whole, the FIL cannot be analysed in isolation but must be seen as part of China’s continuing, evolving and expanding process of reform and opening-up.
At present, China is in the midst of a carefully managed pivot away from an economy centred on mass production to an economic model that prioritises high quality development, innovation, scientific research and technological excellence. These internal developments are occurring simultaneous to a new era in trade in which China is welcoming and seeking ever more imported goods than at any time in the contemporary era.
As part of the wider drive for openness in all directions, China is also set to welcome ever more capital in addition to welcoming ever more imported goods. Last year, China moved up 32 places on the global table of nations measured on the ease of doing business. The FIL looks set to help China move up even further as the procedures to invest in China and open a business operation in China become more user friendly whilst offering greater legal guarantees to outsiders in terms of judicial rights and statutory intellectual property protections.
China also looks to attract international financial institutions to set up new ventures in the country. UBS AG recently made history by becoming the first foreign bank operating in China that has raised its stake to a controlling interest in a securities joint venture. Likewise, American Express recently established a joint venture in China that adds to the diversity of card clearing services in the economy.
Continued digitalisation of transactions is also a major factor in helping China to reform and open up with ever more efficiency. China remains a global leader in e-commerce and digital payment mechanisms. According to a 2017 report by the McKinsey Global Institute, mobile payments in China during 2016 accounted for $790 billion in total revenue. By contrast, during that same time, the figure in the US was only $74 billion. Digital transactions and e-commerce have already helped Chinese consumers and entrepreneurs to develop a working mentality in which speed, economic security and platforms allowing for rapid innovation are the rule rather than the exception. The FIL will now allow companies from around the world to utilise China’s digital economy in the pursuit of international win-win goals that are made ever easier to achieve within an economic base that is increasingly paperless and thus, automatically more user friendly and transparent.
When taken as a whole, these new developments will be good for China and good for international businesses and entrepreneurs looking to tap into the immense resources that the Chinese economy has to offer. By ushering in a new era of interconnected openness, China is assuring that prosperity in the pursuit of peaceful win-win development remains a common goal that can be attained within the framework of a rules based economic order in which innovation is encouraged and security for investors is assured.