China rushes through a foreign investment law in an obvious attempt to appease Washington, while negotiators try to dig the world’s two largest economic powers out of a continuing trade war. But will it work?
The approximately 3,000 delegates of the annual National People’s Congress of China (NPC) will approve the new law on Friday. They do not reject laws. That’s not how it’s done here.In a vote, there are usually only a handful who vote against. Some of them potentially look for the show because 100% ” yes ” votes would look ridiculous one by one.
How worrying is China’s slowdown?
If it violates a bill and changes, it happens well before the meeting of the NPC at a number of permanent committee meetings behind closed doors. The process can take years.
This time it took three months.
The Chinese government seems to have made the investment law as a pretext for U.S. trade negotiations.
However, many in the Chinese economy see this act as a kind of far-reaching declaration of intent rather than a specific, enforceable rule. They fear that it may be open to different and changing forms of interpretation.
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Image caption: a large view of the image with the caption: Foreign companies no longer need to work with local companies to enter the Chinese market
The big ticket articles that you will address in relation to the concerns of foreign companies include theft of intellectual property, the requirement for international companies to cooperate with a local entity, and unfair subsidies to Chinese companies.
It will also appeal to the preferred treatment in awarding contracts to Chinese companies and will force foreign companies to hand over their technological secrets as the entry price for the massive Chinese market.
But this law won’t help anyone.
There is a “black list” of 48 sectors, which are not open for foreign investment or in some cases, without conditions or special authorization.
For example, there is a complete ban on investments in fisheries, genetic research, religious education, news media and television programmes.
Partial investments are permitted, among other things, in oil and gas production, nuclear power, airlines, airport operations and public health.
Non-renewable energy production will take several years, but will then expire.
For industries that are not on the list, the principle is that foreign companies receive the same treatment as their Chinese counterparts.
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Image caption: while China is opening up more for foreign investment, many industries remain outside
But should foreign companies also be careful?
One of the provisions provides that local subsidiaries of international companies must inform Chinese officials of various details of their activities.
This could include performance indicators in relation to industrial relations, total staff numbers, pollution records and the like.
This sounds good except that foreign companies require legal guarantees and have not received that this data will not be passed on to their Chinese competitors.
Then there is the promised appeal procedure, should you demand restitution after perceived violations of the new law.
If this system is guided by the normal Chinese courts, which routinely guarantee favourable results for the Communist Party, then this does not seem to be a satisfactory enforcement mechanism for many.
Part of the law states that there should be a ban on “illegal state interference” in the activities of foreign companies.
The further they go up the heads of government, the less likely it would be to win in such a dispute.
Over the years, we have reported on many cases of foreign businessmen, especially ethnic Chinese, who, after a trade dispute with a local businessman who has the support of lower Communist Party leaders, were sent to highly questionable charges in prison.