Rule of law strengthens business environment

As attracting foreign investment has become a pivotal measure for countries to drive economic growth, the stability, transparency, and fairness of the legal environment are increasingly emerging as core competitive advantages.

Guided by the Xi Jinping Thought on the Rule of Law, China has been advancing the development of a law-based governance system, with its ever-improving legal environment now serving as a key source of competitiveness in attracting foreign investment.

Despite increasing downward pressure on the global economy and intensified trade frictions, China has maintained its strong appeal to foreign investors, seeing continuous growth in foreign direct investment in recent years. Take the automotive industry as an example — many internationally renowned car brands have significantly increased their investments in China.

This is taking place not only due to the vast market demand but also because of the continuous improvement in China's legal environment, which provides them with a stable, transparent and fair investment climate. These companies enjoy the same legal protection and policy support as their Chinese counterparts, with their legitimate rights and interests effectively safeguarded.

There is an inherent link between a stable rule of law environment and foreign investment attractiveness. As rational economic actors, enterprises carefully consider uncertainties in the investment environment when making investment decisions. In this backdrop, the legal system plays a crucial role in influencing their decision by reducing transaction costs, protecting property rights and providing stable expectations.

For foreign investors, a stable rule of law environment translates into lower investment risks. When the legal system clearly defines property rights and ensures the effective enforcement of contracts, foreign enterprises can more accurately calculate investment costs and returns, reduce perceived risks, and thus be more willing to make long-term investments.

For instance, the enactment of China's Foreign Investment Law established the pre-establishment national treatment plus negative list management system for foreign investment. The implementation of this law reduced legal uncertainties for foreign enterprises and enhanced the predictability of investment.

The transparency of the legal environment is a key factor in reducing transaction costs. Information asymmetry during the investment process is a major cause of market inefficiency, as unclear or opaque legal rules can create uncertainties and potential legal risks for businesses.

In contrast, a transparent legal system minimizes information asymmetry, enabling foreign enterprises to clearly understand legal requirements, regulatory standards and market rules, thereby avoiding additional transaction costs. For example, China's ongoing efforts to streamline administration, delegate power and improve regulation have simplified administrative procedures and made processes and standards publicly available, allowing foreign enterprises to conduct investment activities more efficiently.

Compared to other countries, China's rule of law environment offers distinct advantages. In terms of institutional design, China adheres to the socialist market economy system, integrating market mechanisms with the rule of law to create a distinctive model of a rule-of-law economy.

This model fully leverages the decisive role of the market in resource allocation while regulating market order through legal means to ensure fair competition. China has continuously advanced judicial reforms to strengthen impartial justice and ensure the independent and fair exercise of judicial and prosecutorial powers.

In terms of intellectual property protection, China has continuously strengthened legislation and enforcement, refining its IP protection framework. The revised patent law in 2020 raised the maximum statutory compensation for intentional infringement to 5 million yuan ($710,111), intensifying the crackdown on IP violations.

China's Supreme People's Court has issued a series of regulations on the centralized jurisdiction of civil, administrative and criminal IP cases, aligning more closely with international standards. For instance, China has strengthened cooperation with foreign courts and international organizations in cross-border trade and IP collaboration to combat transnational IP infringements.

The use of big data and artificial intelligence has also improved the quality and efficiency of IP case adjudication. Many executives of high-tech foreign enterprises have stated that China's robust IP protection environment is a key reason for their investment decisions in the country.

As decision-makers and managers of foreign-invested enterprises in China, senior executives of multinational companies serve as the most direct validators of China's legal environment through their personal experiences and observations. Many of them note that China's legal framework has undergone transformative changes over the past few decades — evolving from an initially incomplete legal system with inconsistent enforcement to one that is now stable, fair and transparent.

The senior executives have witnessed firsthand the development of China's rule of law with Chinese characteristics. For example, a multinational corporation's chief in China noted that although its company faced certain legal and policy uncertainties when first entering the Chinese market over two decades ago, the continuous advancement of China's legal system — particularly the introduction of a series of laws and regulations aimed at improving the business environment — has significantly enhanced the conditions for its investment and operations in the country.

The socialist rule of law with Chinese characteristics has continuously evolved and improved in practice, creating a favorable legal environment for foreign enterprises and laying a solid foundation for China's sustained and healthy economic development.

Throughout this process, China has consistently adhered to the leadership of the Communist Party of China (CPC), the people's position as masters of the country, and law-based governance, forging a rule-of-law path that suits China's national conditions and embodies Chinese characteristics.

The leadership of the CPC serves as the fundamental guarantee for this path. In attracting foreign investment, the Party strategically plans and formulates scientific policies and regulations, guiding capital toward sectors and industries aligned with national development strategies.

The CPC coordinates diverse interests to ensure policy stability and continuity, thereby creating a predictable investment environment for foreign enterprises.

Moving forward, China will continue to be guided by the Xi Jinping Thought on the Rule of Law, upholding and improving the integration of domestic and international legal frameworks.

By doing so, China will better leverage the role of the rule of law in strengthening foundations, stabilizing expectations and delivering long-term benefits. China remains committed to refining its legal environment, enhancing its competitive edge in attracting global investment, and contributing more substantially to the development of the world economy.

The author is the dean of the Academy for the Foreign-related Rule of Law of Renmin University of China.

The views don't necessarily reflect those of China Daily.

If you have a specific expertise, or would like to share your thought about our stories, then send us your writings at opinion@chinadaily.com.cn, and comment@chinadaily.com.cn.