China Signals Improvements for Foreign Investors
On 1 November 2019, the Ministry of Justice released the Implementing Regulations for the Foreign Investment Law of the People’s Republic of China (Draft for Comment) (“Draft Regulations”) which were jointly drafted by the Ministry of Commerce (MOFCOM) and the National Development and Reform Commission. The Draft Regulations clarify the PRC Foreign Investment Law which will come into force on 1 January 2020. The Draft Regulations coupled with a slew of regulations in respect of foreign exchange are largely positive for foreign investors looking at or already in China. Indeed, in theory, the relaxation in respect of foreign exchange remittance may be helpful for foreign investors looking to leave China. The relative slowdown in China coupled with over ambitious expansion plans in the early 2000s means that many foreign investors have excess capacity which they need to reduce. The provisions should ease the transfer of funds overseas. There is a lot positives in the Draft Regulations, for example more level playing field, better IP protection, great ease in transmitting funds overseas and tacit acknowledgement of the VIE structure etc. However, the main issue is whether the actual implementation on the ground will match the ambition of the regulations. Most decisions are made locally, so it is unclear whether the local authorities will support the greater flexibility afforded under the Draft Regulations or will they continue in their old ways. Time will tell.