China reviews inbound investment laws

BEIJING - Chinese legislators began their first reading of draft amendments to four laws regulating foreign and Taiwanese investment Monday.

During its bimonthly session, the National People's Congress (NPC) Standing Committee will consider provisions that may allow foreign and Taiwanese investors to start businesses across China as easily as in the four free trade zones (FTZ).

The four laws include the Law on Foreign-Capital Enterprises, the Law on Chinese-Foreign Equity Joint Ventures, the Law on Chinese-Foreign Contractual Joint Ventures, and the Law on the Protection of Investment of Taiwan Compatriots.

In two temporary resolutions in 2013 and 2014, the NPC Standing Committee authorized the State Council to bypass these laws and allow foreign and Taiwanese investors to establish firms in Shanghai, Guangdong, Tianjin and Fujian FTZs without government approval. Such investors are only required to report business plans to local regulators as long as their business is not on a "negative list."

The first temporary adjustment will expire on September 30 and the government now needs a new, long-term legal basis, proven to be "effective".

"The trials in the four FTZs had notable effects in the last two years," China's Minister of Commerce Gao Hucheng told the lawmakers Monday.

The time required to set up a business in the FTZs was reduced to less than three days from more than 20 days.

In the first half of 2016, a total of 4,923 foreign-funded firms were established in the four FTZs, investing 359 billion yuan (about $54 billion).

According to a poll conducted by the Development Research Center of the State Council, 90.9 percent of firms surveyed said the new mechanisms encouraged foreign companies to "increase" or "substantially increase" investment in China. All respondents believed it is now "easier" or "much easier" to start a business.

Now it is time to expand the trials, Gao told the NPC session.

The proposed expansion comes at a time when the total world foreign investment this year will likely drop by 10 percent to 15 percent, according to a report by the United Nations Conference on Trade and Development. In the first half of 2016, foreign investment in China grew 5.1 percent, slowing from 6.4 percent for the whole of 2015.

"The expansion of the negative list mechanism will increase China's attractiveness for foreign investment," said Xing Houyuan, a researcher with the Chinese Ministry of Commerce (MOC).

The MOC said it will work on a nationwide negative list for foreign investment, if the top legislature passes the bill.

The broader cancellation of government approvals will be a test for China's capability to regulate foreign-funded business and ward off risks, according to Ye.