Regulators and investors face new challenges

With a new Foreign Investment Law in the pipeline, Beijing continues its mission to build a more transparent and predictable legal framework for conducting business in China. But with regulatory agencies facing the tough task of enforcement, foreign companies are concerned of being caught up in the learning curve.

The decision to streamline three current laws that govern foreign investments into one unified law has been welcomed by the foreign business community.

Solicitation of public comments during the drafting process also had higher-than - expected participation from foreign companies and associations, according to Commerce Minister Gao Hucheng.

However, increased transparency and predictability in the legislative process is only part of the battle for the greater rule of law.

James Zimmerman, chairman of the American Chamber of Commerce in China and partner at United States-based law firm Sheppard, Mullin, Richter & Hampton LLP, said that China has had a phenomenal law-drafting process, but the onus is now on the regulatory agencies.

"These agencies have to develop their own rules and regulations on how to enforce the law as well as building and training their staff," said Zimmerman.

"It is a time of learning (for the agencies) where there will be mistakes. But the learning curve to getting a full understanding of how to enforce the law is a cause for concern (for US companies)," he said.

From 2007 to 2010, a flurry of laws were passed including the Anti-monopoly Law and Corporate Income Tax Law, but only recently have enforcement efforts been stepped up.

Stricter enforcement of the anti-monopoly law by regulatory authorities last year led to the European Union Chamber of Commerce questioning whether foreign companies were being disproportionately targeted due to instances of heavy-handed tactics.

An AmCham business climate survey last month found that 57 percent of its members believed that foreign companies had been singled out in recent campaigns.

The issue was not enforcement, something that both chambers vocally supported as a signal of supremacy of law, but the perception that enforcement was not carried out in a transparent, impartial and consistent manner, according to a statement by the EU Chamber last August.

In response to the concerns, Xu Kunlin, director of the bureau of price supervision and anti-monopoly at the National Development and Reform Commission, has said that regulators followed the law without regard to a company's domicile and made a commitment to ensure procedural fairness and transparency in investigations.

Despite lingering concerns, the foreign business community remains committed to China, with more than 60 percent of AmCham member companies considering China a top-three or first priority for investments.

For organizations such as AmCham, greater collaboration with regulatory agencies, such as joint seminars to explain the enforcement process, would not only help foster a sense of fairness and predictability but also allow the chamber to train members to comply fully with the laws.