Impacts of Chinese Laws and Policies on
Foreign Investment Upon China's Accession to the WTO
With the furtherance of reforms and opening to the outside world of China and the development of the market economy, the amount of foreign investment introduced by China is on continuous increase, which has become the largest importer of capital among the developing countries. At the same time, Chinese laws and policies on foreign investment are increasingly complete and perfect, which play a very important role in encouraging, protecting and managing foreign investment.
Upon China's accession to the WTO and in compliance with the WTO rules and China's commitments to its accession to the WTO, China shall take steps for reducing the tariff and non-tariff barriers and opening the service trade market, and therefore, the environment for foreign investment will be further improved. However, China is still at the stage of economic transformation with immature market economy. In such circumstance, what are the roles and impacts of its laws and policies on foreign investment upon its accession to the WTO? Whether are there still any measures with unfavorable impacts on foreign investment? Whether and how can foreign-invested enterprises enjoy the national treatment? How to amend the current Chinese measures? All those are of great concerns to foreign investors and international community.
The report is an analysis and appraisal on all those issues according to the requirements of the World Bank. Part One of this report is a survey of Chinese laws and policies on foreign investment; Part Two is a discussion on the influences and roles of Chinese laws and policies of foreign Investment on the penetration of foreign investment in different industrial sectors; Part Three is an analysis on the issues of the national treatment with foreign investment and the relevant activities; Part Four is a discussion on the issues of amendments to the current Chinese laws and policies; Part Five and Part Six are specific analyses on the two representative sectors of auto industry and banking industry respectively and Part Seven is brief conclusions.
I. Chinese Laws and Policies on Foreign Investment
The legislation of China on foreign investment does not adopt a uniform code, which, however, is an integrated system centering on special legislations on various categories of foreign investment with other relevant supplementary laws and regulations. The laws and regulations on foreign-invested enterprises are a regime of the legal norms and rules formulated by China on adjusting the economic relations that occur during the establishment, alteration, termination, operation and management of foreign-invested enterprises, mainly including the Law of the People's Republic of China on Chinese and Foreign Equity Joint Ventures, the Law of the People's Republic of China on Chinese and Foreign Contractual Cooperative Enterprises, the Law of the People's Republic of China on Enterprises with Foreign Capital, other basic legislations and their implementing rules formulated by the National People's Congress and its Standing Committee, as well as a series of administrative laws and regulations, stipulations and measures promulgated by the State Council and its subordinate ministries and commissions according to the constitution and laws. The relevant Chinese laws and regulations include the relevant provisions of the General Principles of Civil Law, the Company Law, the Securities Law, the Trademark Law, the Patent Law and other laws. In addition, local regions have also formulated corresponding local regulations and policies on local foreign investment, such as the Regulations on Guangdong Special Economic Zones, Several Provisions of Shanghai Municipality on Encouraging Foreign Investment in Pudong New Area, etc. Thus, national and local policies and legislations on foreign investment are combined for joint adjustment of foreign investment and the relevant activities.
Chinese laws and policies on foreign investment mainly involve the access of foreign investment and establishment of enterprises, the management over the operational activities of foreign investment, as well as the protection and encouragement of foreign investment, which are elaborated as follow correspondingly.
(I) Access of Foreign Investment and Establishment of Enterprises
1. Scope of access
2. Proportion and control of ownerships
3. Procedures of access
(II) Management over the Operational Activities of Foreign Investment
(1) Requirement for local content
(2) Requirements for the balance of foreign exchanges and trade balance
(3) Requirements for export performance
(4) Requirements for the filing of the production plan of enterprises
(5) Requirements for labor employment
(1) Administration of import and export licenses and quotas
(2) Appraisal of imported equipment of foreign-invested enterprises
(3) Business scope of foreign-invested enterprises
(4) Foreign exchange control
(5) Abused charges and charge apportionment. Some local governments adopt
(III) Protection and Encouragement of Foreign Investment
1. Protection of foreign investment
1) On nationalization and guarantee of compensations
2) Guarantee for the remittance of the profits and principals of foreign investment
2. Encouragement of foreign investment
1) Tax incentives
2) Preferences in the aspects of import and export
3) Other preferential and encouragement measures
II. Influences of Chinese Legislation and Policies of Foreign Investment on the Penetration of Foreign Investment in Different Industries and Sectors
(I) China's Commitments to Market Access upon Its Accession to the WTO
(II) Prohibitive and Restrictive Policies on Foreign Investment
(III) Encouragement and Preferential Policies
III. Issues on National Treatment
(I) General Attitudes of China Toward National Treatment
(II) National Treatment Basically Enjoyed in the Operational Activities of Foreign Investment
(III) Super-National Treatment Enjoyed in Taxation with Foreign Investment
(IV) Differential Treatment Still Existing in the Access of Foreign Investment
IV. Trends for Amendments to the Current Policies and Laws
(I) Policies for Access of Foreign Investment Will Be Further Relaxed Gradually
(II) Further Reducing the Restrictions on the Operations of Foreign Investment
(III) Reforms on Tax Incentive Measures
V. Analysis on Industrial Sectors (I): Auto Industry
(I) Current Chinese laws and policies in auto industry with foreign investment
(II) China's Commitments to its Accession to the WTO and the Influences on Foreign Investment
(III) Amendments to the Policies on Auto Industry in China and the Influences
VI. Analysis on Industrial Sectors (II): Banking Industry
(I) Market Access
(II) Administration of Financial Institutions with Foreign Investment
(III) Several Hot Issues on Policies for Foreign Investment
As mentioned above, Chinese laws and policies on foreign investment have been amended upon its accession to the WTO, which are basically in consistence with the WTO rules, thus further improving the investment environment of China. Those laws and policies are of important roles in administering and guiding foreign investment and will be of positive impacts on the access and operation of foreign investment.
In terms of access of foreign investment, China has relaxed the restrictions on the access of foreign investment to a big extent. According to the provisions of the relevant Chinese laws and policies, foreign investment will gradually access to or penetrate into the industrial sectors previously prohibited or strictly restricted for the access of foreign investment. Though the restrictions are still pretty strict on some industrial sectors, such as auto industry and banking industry, such restrictions will be further relaxed. Therefore, China will become one of the countries most attractive to foreign investment. Certainly, in the procedures of access, the system of administrative examination and approval, in particular, is still a major obstacle to the access of foreign investment, which requires for further reforms, thus gradually reducing the scope of examination and approval, simplifying formalities and enhancing efficiency.
In terms of the operations of foreign investment, China has repealed the performance requirements that are prohibited by the TRIMS agreement, such as the requirements for local content and the requirements for foreign exchanges. Thus, foreign-invested enterprises basically enjoy the same treatment as that of the domestic-invested enterprises, the decision-making powers of operations are further safeguarded and their operational environments have been greatly improved. Certainly, China is still at the stage of economic transformation and there is certain gap between some measures adopted by the government for the administration of economic activities and the requirements of the principles of the market economy and the WTO rules. There is also some difference in administration on the operational activities of between domestic and foreign-invested enterprises, which differences is influential on the fair competition of domestic and foreign-invested enterprises. Therefore, further reforms and improvement are required on import and export administration, foreign exchange administration, financial supervision, as well as industrial and commercial administration.
In a long term, China has offered foreign-invested enterprises with very favorable preferential treatment, which encouragement measures are of important role in attracting foreign investment. Upon China's accession to the WTO, those favorable treatments will not be repealed but be aligned with domestic-invested enterprises. That is to say, the relevant preferential treatment will be equally applicable to both the foreign-invested and the domestic-invested enterprises, thus changing the phenomenon of "super-national treatment" currently enjoyed by foreign-invested enterprises. Such change will be conducive to the fair competition between the domestic and foreign-invested enterprises without negative impacts on foreign investment.