China Foreign Investment Law: How Will It Impact the Existing FIEs?
It has been more than two months since China’s new Foreign Investment Law (FIL) was passed at the second session of the 13th National People’s Congress (NPC) of China on 15 March 2019. Some thought the FIL was an indication that the US-China trade talks would soon be wrapped up. This is unlikely. Despite this the FIL has shown China reiterating a willingness to deepen reform and open up its economy. There has already been a noticeable trend in China over the last 20 years of the authorities opening China’s market to foreign investment. The world’s biggest market still presents challenges but for most sectors there are limited legal hurdles to overcome. Most sectors are already open to foreign investment (i.e. no prohibition or requirement to have a Chinese partner) and indeed most foreign-invested enterprises (FIEs) established in China are wholly foreign-owned enterprises (WFOEs). It is no doubt that the FIL will reshape the Chinese foreign investment legal regime and will formulate the new landscape of China’s foreign investment in the long run. The keenest and most immediate impact FIL will not be felt by those watching from afar or considering entering the Chinese market. While for the nearly 300,000 China’s FIEs especially the existing joint ventures, their shareholders will have the opportunity to restructure the management and corporate governance of their joint ventures in a far more flexible fashion. We believe such changes may not be achieved overnight and both the Chinese and foreign shareholders will need to weigh in their bargain power, interdependency and core interest when striking a deal.