On March 15, 2019, the National People’s Congress of China (the “NPC”) approved the Foreign Investment Law of the People’s Republic of China (the “FIL”), which is set to become effective on January 1, 2020. The FIL introduces sweeping changes to China’s current legal regime governing foreign investments and, if properly implemented, holds the promise of ushering in a new era for foreign investments in China.
The FIL, when effective, will supersede three laws separately governing foreign investments, namely the Foreign Invested Enterprise Law (the “FIE Law”), the Sino-Foreign Equity Joint Venture Law (the “EJV Law”) and the Sino-Foreign Cooperative Joint Venture Law (the “CJV Law”, and together with the FIE Law and EJV Law, the “Existing Laws”). Under the current regime, which of the Existing Laws applies to a foreign investment depends entirely on the type of Chinese entity through which such investment is made (such entity being referred to as a foreign invested enterprise, or “FIE”). An FIE that is a wholly owned Chinese subsidiary of the foreign investor is subject to the FIE Law, whereas investments in Chinese joint venture entities are governed by either the EJV Law or the CJV Law. FIEs of one type typically have equity and governance structures that are different from those of other FIEs, as well as those of Chinese domestic companies. Furthermore, the current regime is marked by its disparate treatment of FIEs and Chinese domestic companies. For example, FIEs, especially joint ventures, are typically subject to governmental approval or filing requirements at every step of its life cycle and generally cannot be listed on a Chinese stock exchange. By unifying the currently fragmented regime, the FIL will simplify the structuring of foreign investments and also, for the first time in the context of a national law, provide for equal treatment as between FIEs and Chinese domestic companies.