Public Comments Sought on the Foreign Investment Law of the People's Republic of China (Draft for Comment) by the Ministry of Commerce

Public Comments Sought on the Foreign Investment Law of the People's Republic of China (Draft for Comment) by the Ministry of Commerce
Public Comments Sought on the Foreign Investment Law of the People's Republic of China (Draft for Comment) by the Ministry of Commerce

January 19, 2015

In order to implement and execute the spirit of the Third and Fourth Plenary Sessions of the 18th Central Committee of the Communist Party of China and subject to the Legislation Programme of the Standing Committee of the 12th National People's Congress and the 2014 Legislation Plan of the State Council, the Ministry of Commerce has amended the Law on Sino-foreign Equity Joint Ventures, the Law on Wholly Foreign-owned Enterprises and the Law on Sino-foreign Cooperative Joint Ventures to work out the Foreign Investment Law of the People's Republic of China (hereinafter referred to as the "Foreign Investment Law") (Draft for Comment).

In our opinion, the Foreign Investment Law should be a law that deepens structural reform, makes opening to the outside wider, facilitates foreign investment and regulates foreign investment administration. In response to the requirements for building a new open economic system and implementing high-level opening-up, the Draft for Comment aims at unitizing laws and regulations on domestic and foreign investment and innovating the foreign investment laws system, adopts the management mode of pre-access national treatment plus negative list, establishes a management system characterized by "limited permission and comprehensive reporting", improves the national security review system for foreign investment, strengthens the interim and ex post regulation, and reinforces the investment promotion and protection, so as to create a more stable, transparent and foreseeable legal environment for foreign investment in China.

The Draft for Comment is hereby published to the public for comments from all sectors of society. Public comments may be sent via the following channels:

1. visiting the website of the Ministry of Commerce (website: http://www.mofcom.gov.cn), entering the "Comments Solicitation" and clicking the "Comments Sought on the Foreign Investment Law of the People's Republic of China (Draft for Comment)" to provide comments;

2. emailing comments to the address: investmentlaw@mofcom.gov.cn;

3. faxing comments to: 010-65198905; or

4. mailing comments to the address: the Department of Treaty and Law of the Ministry of Commerce, No.2 Dong Chang'an Avenue, Beijing Municipality, zip code: 100731.

Please indicate the words "public comments on the Foreign Investment Law" in the subject of the email or on the first page of the fax or on the envelope.

The deadline for sending comments is February 17, 2015.

Foreign Investment Law of the People's Republic of China (Draft for Comment)

Chapter I General Provisions
Chapter II Foreign Investors and Foreign Investment
Chapter III Access Administration
Chapter IV National Security Review
Chapter V Information Reporting
Chapter VI Investment Promotion
Chapter VII Investment Protection
Chapter VIII Coordination in the Handling of Complaints
Chapter IX Supervision and Inspection
Chapter X Legal Liability
Chapter XI Supplementary Provisions

Chapter I General Provisions

Article 1 [Legislative Purpose]
The Foreign Investment Law of the People's Republic of China (Draft for Comment) (hereinafter referred to as the "Law") is formulated with a view to opening to the outside wider, promoting and regulating foreign investment, protecting the legitimate rights and interests of foreign investors, safeguarding national security and public interests, and facilitating the healthy development of the socialist market economy.

Article 2 [Scope of Application]
The Law applies to investment within the territory of China made by foreign investors.

Article 3 [Investment Protection]
The State protects the legitimate rights and interests of foreign investors and foreign-invested enterprises in accordance with the law.

Article 4 [Compliance with Chinese Laws]
Foreign investors and foreign-invested enterprises shall comply with Chinese laws, and shall not impair the national security and public interests.
When engaging in investment or business activities, foreign investors and foreign-invested enterprises shall comply with social morals and business ethics, act in good faith, accept supervision from society and undertake social responsibilities.

Article 5 [Administrative System for Foreign Investment]
The State adopts a unified administrative system for foreign investment.

Article 6 [National Treatment]
Foreign investors making investments within the territory of China are entitled to the national treatment, unless otherwise specified in the Catalogue of Special Administrative Measures for Foreign Investments (hereinafter referred to as the "Catalogue of Special Administrative Measures") which is formulated in accordance with Article 23 [Catalogue Formulation Procedures] hereof.

Article 7 [Investment Promotion]
The State formulates and implements foreign investment promotion policies suitable for the socialist market economy, to promote the investment facilitation, and establish a sound market system that is uniform but open, orderly and competitive.

Article 8 [Principles of Openness and Transparency]
The State shall observe the principles of openness and transparency in the administration of investment within the territory of China by foreign investors.

Article 9 [Competent Authorities of Foreign Investment]
The competent authority of foreign investment under the State Council shall take charge of the administration and promotion of foreign investment nationwide in accordance herewith.
The competent authorities of foreign investment of local people's governments at or above the county level shall be responsible for the administration and promotion of foreign investment within their respective administrative regions in accordance with the statutory authority.

Article 10 [Investment Treaties]
Based on the principle of equality and mutual benefit, the State concludes multilateral, bilateral, or regional investment treaties, conventions or agreements to promote and develop investment with other countries and regions.

Chapter II Foreign Investors and Foreign Investment

Article 11 [Foreign Investors]
For the purpose of the Law, "foreign investors" refer to the following subjects making investments within the territory of China:
1. natural persons without Chinese nationality;
2. enterprises incorporated under the laws of countries or regions other than China;
3. the governments of countries or regions other than China and the departments or agencies thereunder; and
4. international organizations.
Domestic enterprises under the control of the subjects as mentioned in the preceding paragraph are deemed foreign investors.

Article 12 [Chinese Investors]
For the purpose of the Law, "Chinese investors" refer to the following subjects:
1. natural persons with Chinese nationality;
2. the Chinese government and the departments or agencies thereunder; and
3. domestic enterprises under the control of the subjects as mentioned in the preceding two items.

Article 13 [Domestic Enterprises]
For the purpose of the Law, "domestic enterprises" refer to the enterprises incorporated within the territory of China under Chinese laws.

Article 14 [Foreign-invested Enterprises]
For the purpose of the Law, "foreign-invested enterprises" refer to enterprises wholly or partly invested in by foreign investors, and incorporated within the territory of China under Chinese laws.

Article 15 [Foreign Investment]
For the purpose of the Law, "foreign investment" refers to the following investment activities carried out directly or indirectly by foreign investors:
1. establishing a domestic enterprise;
2. acquiring the shares, equities, share of properties, voting rights or other similar interests of a domestic enterprise;
3. providing any domestic enterprises in which foreign investors hold the interests as mentioned in the preceding item with financing for not less than one year;
4. acquiring the concessions to explore or exploit natural resources within the territory or jurisdiction of China, or acquiring the concessions to construct or operate the infrastructure;
5. acquiring the rights to immovable property including the right to use domestic land and house ownership; or
6. controlling any domestic enterprise or holding interests in any domestic enterprise by contract, trust or other means.
Any transaction outside China that leads to the transfer of the actual control of any domestic enterprise to a foreign investor shall be deemed investment within the territory of China by the foreign investor.

Article 16 [Rights to Immovable Property]
Where a foreign investor acquires land use rights, home ownership or other rights to immovable property within the territory of China, the provisions of the relevant laws and regulations shall apply, and the provisions of Chapter IV [National Security Review] and Chapter V [Information Reporting] hereof shall also be complied with.

Article 17 [Non-profit Organizations]
Where a foreign investor establishes a non-profit organization or acquires an interest in a non-profit organization within the territory of China, the provisions of the relevant laws and regulations shall apply, and the provisions of Chapter IV [National Security Review] and Chapter V [Information Reporting] hereof shall also be complied with.

Article 18 [Control]
For the purpose of the Law, "control" refers to the circumstance that any of the following conditions is met with respect to an enterprise:
1. holding, directly or indirectly, not less than 50% of shares, equities, share of properties, voting rights or other similar rights of the enterprise;
2. holding, directly or indirectly, less than 50% of shares, equities, share of properties, voting rights or other similar rights of the enterprise, but falling under any of the following circumstances:
(1) having the right to directly or indirectly appoint not less than half of the members of the board of directors or other similar decision-making body of the enterprise;
(2) having the ability to ensure that its nominees occupy not less than half of the seats on the board of directors or other similar decision-making body of the enterprise; or
(3) holding voting rights sufficient to impose significant impacts on any resolution of the board of shareholders, at the general meeting of shareholders, or of the board of directors or other decision-making body of the enterprise.
3. imposing decisive impacts on the operation, finance, personnel or technology of the enterprise by contract, trust, or other means.

Article 19 [Actual Controllers]
For the purpose of the Law, "actual controllers" refer to natural persons or enterprises that directly or indirectly control any foreign investor or foreign-invested enterprise.

Chapter III Access Administration

Section 1 General Provisions

Article 20 [Access System for Foreign Investment]
The State adopts a unified access system for foreign investment, and subject to the Catalogue of Special Administrative Measures, implements the management of the sectors where foreign investments are prohibited or restricted.

Article 21 [Competent Authority of Foreign Investment Access]
The competent authorities of foreign investment shall, in concert with the relevant departments, implement the administration of foreign investment access.

Article 22 [Catalogue of Special Administrative Measures]
If foreign investors and their investment are granted treatment lower than that granted to Chinese investors and their investment, or are subject to other restrictions, such treatment or restriction shall be provided for by laws, administrative regulations or decisions of the State Council, and be incorporated in the Catalogue of Special Administrative Measures.

Article 23 [Catalogue Formulation Procedures]
The Catalogue of Special Administrative Measures shall be uniformly formulated and promulgated by the State Council.
The competent authority of foreign investment under the State Council shall, in concert with the relevant departments, propose suggestions on formulating or adjusting the Catalogue of Special Administrative Measures in accordance with multilateral, bilateral, and regional treaties, conventions and agreements signed by the State as well as the relevant laws, administrative regulations and decisions of the State Council on foreign investment, and submit such suggestions to the State Council for deliberation.

Article 24 [Classification of Catalogue]
The Catalogue of Special Administrative Measures is classified into the Catalogue of Prohibitions and the Catalogue of Restrictions.
The Catalogue of Restrictions shall specify in detail the restrictive conditions for foreign investments.

Article 25 [Catalogue of Prohibitions]
Foreign investors are not allowed to invest in any sector set out in the Catalogue of Prohibitions.
Where any foreign investor directly or indirectly holds shares, equities, properties or other interests or voting rights in any domestic company, such domestic company is not allowed to invest in any sector set out in the Catalogue of Prohibitions, unless otherwise specified by the State Council.

Article 26 [Catalogue of Restrictions]
The Catalogue of Restrictions involves the following circumstances:
1. investment with an amount above the standards prescribed by the State Council; and
2. sectors where foreign investment is restricted.
For any foreign investment involved in any circumstance set out in the Catalogue of Restrictions, the conditions provided for in the Catalogue of Restrictions shall be met, and an application for the foreign investment access permission shall be filed with the competent authority in accordance herewith.
An application for access permission is not required if the foreign investment is not involved in any circumstance set out in the Catalogue of Restrictions.

Section 2 Access Permission

Article 27 [Application for Foreign Investment Access Permission]
For any investment set out in Item 1, Paragraph 1 of Article 26 [Catalogue of Restrictions] hereof, an application shall be filed for access permission with the competent authority of foreign investment under the State Council.
For any investment set out in Item 2, Paragraph 1 of Article 26 [Catalogue of Restrictions] hereof, an application shall be filed for access permission with the competent authority of foreign investment under the State Council, or the competent authority of foreign investment under the people's government of the relevant province, autonomous region or municipality directly under the Central Government. The specific division of permissions shall be subject to the provisions of the State Council.

Article 28 [Calculation of Investment Amount on an Accumulative Basis]
Where any foreign investor has invested in the same investment matter several times within two years to the extent that the accumulative investment amount reaches the standards as set out in the Catalogue of Restrictions, an application for access permission shall be filed in accordance herewith.

Article 29 [Inclusion of Financing in the Investment Amount]
Where any foreign investor directly or indirectly provides any domestic enterprise in which such investor holds interests with financing for not less than one year, the amount of financing shall be incorporated in the investment amount for calculation.

Article 30 [Application Materials for Access Permission]
Foreign investors shall, when filing the application for access permission with the competent authorities of foreign investment in accordance with Article 27 [Application for Foreign Investment Access Permission] hereof, submit the following materials:
1. the application, including:
(1) information of the foreign investor and the actual controller thereof;
(2) basic information of the foreign investment, including the investment amount, investment sector, region of investment, investment method, and ratio and form of contribution;
(3) statement on the compliance with special administrative measures;
(4) impacts of the foreign investment on energy resources, technological innovation, employment, environmental protection, work safety, regional development, capital project management and development of the industry;
(5) statement on whether the national security review and anti-monopoly review will be triggered;
(6) the licence issued by the competent authority of industry if an application for ex ante industrial licensing is required;
(7) information of the foreign-invested enterprise in respect of organizational form and governance structure if the incorporation or change of such foreign-invested enterprise is involved; and
(8) methods of notification and service.
2. documents and supporting materials relating to the content of the application; and
3. representations and declarations of the foreign investor and the actual controller thereof, and the commitments to the authenticity and integrity of the application materials.
The competent authorities of foreign investment may require foreign investors to submit supplementary materials relating to the content as set out in the preceding paragraph.

Article 31 [Acceptance]
Where the application materials submitted are complete and comply with the legal form, the competent authority of foreign investment shall accept the application for access permission and issue the receipt for acceptance to the applicant.
Where the application materials submitted are incomplete or fail to comply with the legal form, the competent authority of foreign investment shall inform the applicant of all the content to be supplemented and corrected on a one-off basis on the spot or within five working days; otherwise, the application will be considered to be accepted as of the date of receipt of the application materials.

Article 32 [Factors for Review]
The competent authorities of foreign investment shall conduct an access review of foreign investment in the respects as follows:
1. the impacts on national security;
2. whether the conditions specified in the Catalogue of Special Administrative Measures are met;
3. the impacts on energy resources, technological innovation, employment, environmental protection, work safety, regional development, capital project management, competition and public interests;
4. the actual impacts on and control over the development of the industry;
5. obligations under international treaties;
6. the information of the foreign investor and the actual controller thereof; and
7. other factors stipulated by the State Council.

Article 33 [Relationship between Access Permission and Industrial Licensing]
In the event that the foreign investment involves any sector where the application for ex ante industrial licensing is required, the competent authority of foreign investment shall describe whether the industrial licence is obtained in the review decision.
In the event that the foreign investment involves any sector where the application for licensing other than prior industrial licensing is required, the competent authority of foreign investment shall solicit the opinion of the competent authority of the relevant industry in the course of review. The competent authority of the relevant industry shall issue a review opinion, and the competent authority of foreign investment shall describe the review opinion issued by the competent authority of the relevant industry in the review decision.

Article 34 [Transition between Access Permission and Security Review]
When conducting the access review, where the competent authority of foreign investment finds that the foreign investment matter endangers or may endanger national security, it shall suspend the procedures for access review, and inform the applicant in writing of submission of the application for the national security review; the competent authority of foreign investment under the people's government of a province, autonomous region or municipality directly under the Central Government, which conducts the access review, shall report the relevant situation to the competent authority of foreign investment under the State Council. The foreign investors shall submit the application for the national security review in accordance with Chapter IV [National Security Review] hereof, unless the applicants concerned withdraw the application for access permission.

Article 35 [Review Period]
The competent authority of foreign investment shall accomplish the review within 30 working days from the day on which the application for access permission is accepted. The review period may be extended for another 30 working days if the application involves any complex circumstance.
Upon the occurrence of the circumstance stipulated in Article 34 [Transition between Access Permission and Security Review] hereof, which initiates the national security review, the period for national security review shall not be included in the review period stipulated in the preceding paragraph.

Article 36 [Review Decision]
The competent authority of foreign investment shall make a written decision on approval, conditional approval or disapproval of a foreign investment matter in accordance with the law, and shall notify the applicant of such decision; and reasons shall be given for the decision on conditional approval or disapproval.

Article 37 [Type of Additional Conditions]
The competent authority of foreign investment may impose one or more of the following conditions when making the review decision:
1.
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