Draft law lauded abroad as 'milestone'

Proposal before NPC on foreign investment welcomed as a new chapter in opening-up

A proposed new law that would further open up China's economy has been widely welcomed by the international business community.

The draft foreign investment law, which was presented on Friday to the National People's Congress, China's top legislature, and is set for a vote on March 15, will make major changes to the operating environment for foreign companies, if approved.

Under the draft law, foreign companies would receive greater intellectual property protection, forced technology transfers would be forbidden and the negative list of sectors in which overseas companies can operate would be reduced.

The proposed legislation, which is expected to be approved, also specifies that foreign companies are to receive "national treatment" and therefore be dealt with in the same manner as Chinese companies.

Jing Ulrich, Asia-Pacific managing director and vice-chairman of investment bank JP Morgan, said the draft law was a very important step.

"This is a milestone in creating fair and equal competition in China, and we think that in the long run, it should help address some of the concerns of global companies," she said.

"We think that the new foreign investment law will improve the investment environment and will ultimately aid China in attracting more foreign capital."

Robert Lawrence Kuhn, chairman of the Kuhn Foundation and a leading commentator on China, said China had now "backed up its words with actions".

"China has become the champion of globalization and the mutual benefits of free trade, and by opening up further its own markets, it aligns its domestic policy with its international strategy," he said.

The draft law was announced at the end of December by the NPC, which then asked for comments from foreign companies and all interested parties by February 24.

Edward Lehman, managing director of Beijing-based Lehman, Lee & Xu, a law firm that represents many foreign companies in China, said it would be the biggest change in the law since China joined the World Trade Organization in 2001, which required a major opening-up of the economy.

"It is a giant leap in a positive direction. I have been here since the 1980s, and it is one of the biggest changes in the law and the fastest to be introduced in that time," he said.

The draft law incorporates three existing laws. The first, relating to foreign equity participation in joint ventures, was put in place in 1979 and laid the legal foundation for attracting foreign investment into China. The other two laws came in the 1980s and underpinned China's reform and opening-up process.

Wang Chen, vice-chairman of the Standing Committee of the NPC, said on Friday the new law was a new chapter in China's opening-up.

"The law is a full testament to China's determination and confidence in opening wider to the outside world and promoting foreign investment in the new era," he said.

The draft law has already received the backing of major US and European companies that operate in China.

Curt Ferguson, Greater China and Korea president of Coca-Cola said the law would serve as a practical tool to opening up new business opportunities for the company across China. He also said he sees it as part of the upgrading of the economy.

"We are happy to see China is shifting its focus to high-quality growth, as the stable and sustained growth of China's economy is an important base for our development in the country," he said.

Gao Yan, CEO for China of Thyssenkrupp, the German industrial engineering conglomerate, said, "We have seen a variety of further concrete measures designed to improve the business environment for foreign investment, such as lowering tariffs, simplifying the approval process for business licenses and implementing the new negative list for foreign investment."

Bernard Dewit, chairman of the Belgian-Chinese Chamber of Commerce, which is based in Brussels, said he was confident the new law would give foreign companies greater security.

"Foreign investors can be reassured that the rule of law exists in China. It means that if there is a dispute, they can rely on the law and eventually go to a local court and be protected by the law. That is something I think is very important for Europe investors," he said.

There were some concerns as to how the law would be implemented.

Jeffrey Towson, professor of investment at Peking University and author of The One Hour China Book, said implementation of the law would determine whether there has been any profound change.

"There will be questions about details, but these will be developed later. Overall, foreign companies will wait to see about enforcement of the new law. Enforcement is what matters most to them," he said.

"Foreign companies, however, will appreciate that their longstanding concerns are being discussed at the highest levels," Towson added.

The law change in itself would not likely alter the considerable challenges that foreign companies face in China, with many Chinese companies posing increasingly stiff competition.

Edward Tse, CEO and founder of management consultancy Gao Feng Advisory and author of China's Disruptors: How Alibaba, Xiaomi, Tencent, and Other Companies Are Changing the Rules of Business, said that if new sectors are open to foreign companies, not all of these enterprises are likely to succeed.

"It is not all about the law. Chinese companies over the past 10 to 15 years have really advanced. Their use of technology, for example, is often at a higher level than Western companies. So when as a result of this change foreign companies are allowed into new sectors, they will find much stiffer competition than perhaps they anticipate."

Andy Mok, senior researcher at the Center for China and Globalization, the Beijing-based independent think tank, said the law change will make China a more attractive destination for doing business.

"Global capital has choices, and this is another example of China proving itself to be an attractive investment environment," he said.

Zhong Nan and Chen Weihua contributed to this story.