893 word below

As is known to all, Foreign Investment Law of the People's Republic of China came into effect on January 1, 2020, which replacing the original “three laws”, namely Law of the People's Republic of China on Sino-Foreign Equity Joint Ventures,Law of the People's Republic of China on Wholly Foreign-owned Enterprises，Law of the People's Republic of China on Sino-Foreign Contractual Joint Ventures. That is by far the biggest "movement" in China's legal history of foreign investment.

The highlights of this law include the clear implementation of pre-entry national treatment, negative list control, information reporting system, cancellation of the approval of the Commerce Commission, and emphasis on the protection of intellectual property rights. We interpret the major changes below.

First, Article 31 stipulates that the organizational form, organizational structure and activity criteria of foreign-invested enterprises established later shall be governed by the Company Law of the people's Republic of China (the company law) and The partnership enterprise Law of the people's Republic of China.

According to the original three laws, the board of directors is the highest authority in corporate governance of foreign-invested enterprises. Thereafter, in accordance with the Company Law, the highest authority is the board of shareholders. Major issues like amending the articles of association, capital reduction shall be approved by shareholders representing more than two-thirds of the voting rights. The newly established foreign-funded enterprises shall establish a shareholders' meeting in accordance with the Company Law. At the same time, the number of directors, the method of production, and the authority of the board of directors shall be adjusted accordingly if they are inconsistent with the regulations. 

The above-mentioned changes may bring some inconvenience to foreign shareholders, especially when foreign shareholders are abroad which make the procedures of holding shareholders' meeting, voting, signing or stamping more complicated. However, the above problems would be solved through telephone conferences, video conferences, electronic signatures and so on with development of Internet.

But how to deal with the established foreign-invested enterprises? Article 42 stipulates a five-year transitional period. During the five-year transitional period, foreign-invested enterprises already established may continue to retain the original organizational form of enterprises. After five years, the specific implementation measures shall be prescribed by the State Council.

Second, Article 2 stipulates that the forms of investment in China include direct or indirect new establishment, merger and acquisition, new projects and other forms. Although the Foreign Investment Law does not explicitly specify whether to include the "VIE mode" and other forms of foreign investment, it does not rule out that will be included in the scope of supervision through the Pocket Clause in the future.

Third, Article 4 stipulates that the state mentains a system of pre-entry national treatment plus a negative list management for foreign investment. Article 28 stipulates that foreign investors Foreign investors shall not invest in the areas where investment is prohibited under the negative list for the admission of foreign investment. Foreign investors shall meet the conditions set forth in the negative list for the admission of foreign investment to invest in the areas where investment is restricted under the negative list. Management of foreign investment in the areas beyond the negative list shall be implemented in accordance with the principle of equality between domestic and foreign investment. Article 34 The State establishes a system for foreign investment information reporting. Foreign investors or foreign-invested enterprises shall submit investment information to the competent commerce departments through the enterprise registration system and the enterprise credit information publicity system.

The negative list and information reporting system in the clause replace the original approval and filing system of the Ministry of Commerce. Those investment outside the negative list are directly given national treatment without equity proportion restriction. 

For foreign investors, the key is to know the specific contents of the negative list. At present, the following negative list are still in effect, including special administrative measures for foreign investment access (negative list 2020 edition), special administrative measures for foreign investment access in pilot free trade zones (negative list 2020 edition), negative list of market access, catalogue for guiding industry restructuring. we have organized above into a separate form, feel free to contact us if you want it.

To be continued