On January 19, 2015, MOFCOM released a draft for comment of PRC
Foreign Investment Law (the "FIL"). The
deadline for comments is February 17, 2015. The purpose of the FIL
is to replace the present-day laws for foreign investment, i.e.
PRC Sino-foreign Equity Joint Venture Law, PRC Sino-foreign
Contractual Joint Venture Law and PRC Foreign Invested
Enterprises Law (collectively, the "JV
Law"). The major difference between the JV Law and
FIL are as follows.
Foreign Investors & Foreign Investment
The JV Law classifies foreign invested companies in three
categories based on their company forms, i.e. sino-foreign equity
joint venture, sino-foreign contractual joint venture and wholly
owned foreign enterprise, and regulates the foreign invested
The FIL will manage and promote foreign investment based on the
current status and investment behavior of the foreign investors.The
FIE defines "Foreign Investors" in accordance with their
registration places and "Substantial Control" standard.
The domestic companies which are controlled by Chinese investors
will be regarded as foreign investors. (See Art. 11)"Foreign
Investment" will include green land investment, M&A,
medium and long term financing, franchise to explore natural
resources and operate infrastructures, real estate investment and
holding domestic companies through contracts (the
"VIE") and trust. (See Art. 15)
The NDRC and MOFCOM published the Catalogue of Industries
for Guiding Foreign Investment, which outlines the encouraged,
restrictive and prohibited industries for foreign
investment.Foreign investors are required to obtain government
approvals to establish companies or invest in certain projects in
China, even though the relevant industries are encouraged. (See
Art. 3 in PRC Sino-foreign Equity Joint Venture Law, also
see Art. 5 in PRC Sino-foreign Contractual Joint Venture
Law and Art. 6 in PRC Foreign Invested Enterprises
The FIL will cancel the system to examine and approve foreign
investment case by case. The new market entrance system for foreign
investment is "Pre-entrance National Treatment" and
"Negative Foreign Investment Catalogue". The State
Council will publish a new catalogue which contains prohibited and
restrictive industries for foreign investment (the
"New Catalogue"). The foreign investment
authorities will merely implement market entrance permission in the
industries that are listed in the New Catalogue. The permission
will be based on current status and investment behaviors of foreign
investors, rather than investment contracts or articles of
association. Most foreign investment will not need to obtain
government approvals for market entrance. (See Chapter 3)
National Security Review
The FIL includes a chapter about national security review. Such
national security review can be applied by the foreign investors or
commenced by the authority ex officio. (See Art. 50 and 55)The
foreign investors shall not institute any administrative
reconsideration or litigation based on the decision of such
national security review. (See Art. 73)
Foreign investors shall submit information report to government
authorities to disclose their investment and operation in China.
The foreign investors shall submit information reports prior to the
investment or within 30 days from the date of investment, no
matter whether they need market entrance permission or not. (See
Art. 85)There are three forms of such reports: foreign investment
item report, foreign investment item modification report and
foreign investment item periodic report.
The FIE confirms that VIE is one form of foreign investment. The
government authorities are still discussing how to deal with the
VIEs that exist before this FIL, and to which extent the business
scope and operation of such VIEs shall be acknowledged. (See Art.
Complaint Coordination Mechanism
The peoples' governments above county level shall establish
complaint coordination departments for foreign investors to handle
their complaints against relevant administrative authorities. (See
Art. 119 and 123)Such departments may provide suggestions to the
involved administrative authorities, and the administrative
authorities shall reply their solutions in time. (See Art. 120 and
The competent department of foreign investment under State
Council shall establish a credit archive system to disclose
information related to registrations and business operation of
foreign investors. The public may request credit information of
foreign investors and foreign invested enterprises. (See Art. 141
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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