New reforms to boost investment

Foreign investment in China has been showing steady growth. According to figures released by the Ministry of Commerce, FDI rose 6.5 percent in renminbi terms and 2.9 percent in US dollar terms in the first three quarters of last year compared with 2018.

However, experts said that the US-China trade ties and the slowing Chinese economy may pile pressure on efforts to attract more FDI into the world's second-largest economy.

The new Foreign Investment Law, which came into force on Jan 1, is the latest move by China to improve the business environment, especially to encourage FDI.

The new law was approved by the National People's Congress, the country's top legislature, in March 2019. Overseas investors have been expecting this landmark law whose drafting began in 2015. Their hope is it will help improve the country's foreign investment policy framework.

Some key principles highlighted by the new law are: intellectual property rights of foreign businesses are deemed to be protected in the same way as the local firms; foreign investors can freely remit profits, capital gains and liquidation proceeds to their overseas entities, in renminbi or in foreign currency; and foreign investors should be equivalently treated as the Chinese companies (that is, they will enjoy the "national treatment").

"One of the key objectives of countries putting in place policies to encourage foreign investment is to lower barriers to business entry in order to stimulate domestic competition, provide local consumers with new products or services, expand employment opportunities and foster innovation－all of which are engines of growth," said Harry Broadman, managing director and chair of the emerging markets practice at the Berkeley Research Group and a member of the Johns Hopkins Faculty.

This new Foreign Investment Law, and its corresponding regulations that are implemented, mark one of the most significant developments in China's treatment of foreign investment, experts said.

Its new regulations intend to accelerate market opening reforms, level the playing field for foreign and domestic firms, and eliminate inconsistencies in the enforcement of laws, according to an article published by Dezan Shira & Associates, a Hong Kong-based pan-Asia, multi-disciplinary professional services firm.

Liu Shijin, deputy head of the economic committee of the National Committee of the Chinese People's Political Consultative Conference, said that China still has room to catch up with best international practices to improve the ranking across the "doing business" indicators, in particular in the areas of getting credit, paying taxes, dealing with insolvency and trading across borders.

It is also a measure to strengthen foreign investors' confidence of doing business in China, he said.

"So far, the financial institutions and products for small and micro enterprises should be increased; and more State-owned capital can be transferred into the social security fund to reduce companies' burden of paying social security fees. Further, the insolvency mechanism for companies should be improved," said Liu.

Wang Yiming, vice-president of the Development Research Center of the State Council, China's Cabinet, said there are still many areas that need improvement, such as the restrictions on market access, and limits on private capital in certain fields like finance, healthcare, and education.

"Market supervision also needs to be improved, and there is no buffer period for some places to implement the new regulatory standards, or there is a one-size-fits-all approach. The efficiency and ability of government services need to be improved, and the credit system needs to be more efficient for cross-sector and cross-regional credit services," said Wang.