Foreign businesses fret as China fast-tracks investment law

China is fast-tracking a foreign investment law at an unprecedented pace to meet Washington’s demands on trade, but businesses fear that time to review and raise objections on a crucial piece of legislation has been cut short. The law will eliminate the requirement for foreign enterprises to transfer proprietary technology to Chinese joint-venture partners. It also includes other steps to level the business playing field that
Western trading partners have long demanded. China’s parliament is expected to vote on the legislation in March — barely two months after debating a first draft.
“It is indeed unprecedented that the bill is being moved by the NPC (National People’s Congress) at such a fast pace,” Wang Jiangyu, an expert on Chinese law at the National University of Singapore, told AFP. “Normally it would take one to three years for a bill to be passed and signed into law.” Foreign businesses worry the draft glosses over details and that vague language leaves room for broad interpretation. For example, it gives China the right to expropriate foreign investment “for the public interest”, which foreign business groups fear could be abused.

– Ticking clock –

A draft law was first published for comment in 2015 but was quickly shelved
until it resurfaced late last year, Wang said.

It was only submitted to China’s rubber-stamp legislature for a first
reading on December 23, and made available for public comment until February
The top decision-making body of the legislature convened a special two-day
session this past Tuesday to debate another “updated version”, state news
agency Xinhua reported.

The law will probably be approved during the parliament’s roughly 10-day
annual session which opens March 5, Wang said.

The clock is ticking on a March 1 US-set deadline for China to address
trade concerns and avert an escalation in their tariff war.

“What we feel with this piece of legislation is that it’s been squeezed
between the normal legal process and the negotiation table (to defuse) the
trade conflict,” the president of the EU Chamber of Commerce in China, Mats
Harborn, told AFP.

“In our view this is a little unfortunate because this is an important
piece of legislation that will have an effect… on all foreign companies.”

Both the EU and American chambers of commerce in China said they rushed to
submit feedback from members this week.

– Falling short –

Although the legislation covers several pain points highlighted by US
President Donald Trump including safeguarding foreign capital from government
“interference”, it falls short in other key areas, the business lobbies said.

“The current draft law is high-level and general” and requires more
detailed guidelines and implementing measures, the American Chamber of
Commerce in Beijing wrote in its feedback report, a summary of which was seen
by AFP.

The December version debated by lawmakers is considerably shorter — by
over 130 fewer articles — than the previous 2015 draft.

A section describing how the government will scrutinise foreign investments
for potential national security concerns is limited to two sentences in the
December version — simply stating that China would establish a review
process and that decisions would be made according to law.

The earlier version had a beefy five-page chapter detailing how companies
could appeal security rulings, plus examples of factors that could trigger a
security review, said Jacob Parker, vice president of China operations at the
US-China Business Council.

But the latest draft stipulates that all national security review decisions
are final, implying no administrative or legal appeals were possible.

Both the EU and American trade chambers are also urging China to consider
having a single Company Law to govern both foreign and domestic enterprises,
as is common in many countries.

“It’s now time to make sure that all companies are seen as making the same
positive contribution to China when it comes to growth, employment, taxes,
R&D and so on. There shouldn’t be a distinction based on where the investment
comes from,” Harborn said.