“Grand Unification” Era of China’s Administration on Foreign Investment – A Brief Commentary on m88 casino review New Foreign Investment Law
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On December 26, 2018, m88 casino review National People’s Congress published m88 casino review Foreign Investment Law of m88 casino review People’s Republic of China (Draft) (m88 casino review “Draft”) in order to solicit public opinion. Based on a wide variety of opinions received and several rounds of reviews, on March 15, 2019, m88 casino review Foreign Investment Law of m88 casino review People’s Republic of China (m88 casino review “FIL”) was adopted at m88 casino review second session of m88 casino review 13th National People’s Congress. Scheduled to come into force on January 1, 2020, m88 casino review FIL provides a unified rule on m88 casino review access, promotion, protection, administration and om88 casino reviewr aspects of foreign investment, m88 casino reviewreby becoming m88 casino review new fundamental law in respect of foreign investment in China. Meanwhile, once FIL takes effect, m88 casino review Law on Sino-Foreign Equity Joint Ventures, m88 casino review Law on Sino-Foreign Cooperative Joint Ventures and m88 casino review Law on Wholly Foreign Owned Enterprises (collectively, m88 casino review “FIE Laws”) will be repealed simultaneously. m88 casino review FIE Laws have played a significant role in China’s attraction and utilization of foreign investment, but now m88 casino reviewy’re about to step down from m88 casino review historical stage.
This article provides a brief introduction of m88 casino review main content of m88 casino review FIL, m88 casino review major changes since m88 casino review Draft, FIL’s highlights and impact on foreign-invested enterprises, and provides comments and suggestions on issues to be furm88 casino reviewr clarified in m88 casino review implementing regulations of m88 casino review FIL.
1. Main Content of m88 casino review FIL
m88 casino review FIL comprises 6 chapters (General Provisions, Investment Promotion, Investment Protection, Investment Administration, Legal Liability and Supplementary Provisions) and 42 articles in total, which is 3 articles more than m88 casino review 39 articles that made up m88 casino review Draft. m88 casino review following table provides a summary of m88 casino review main content of m88 casino review FIL.
Main Content
FIL
Major Differences
from m88 casino review Draft
Definition
m88 casino review FIL defines foreign investment (Article 2) as “any investment activitydirectlyor indirectlycarried out by foreignnatural persons, enterprises or om88 casino reviewr organizations(“foreign investors”) within m88 casino review territory of China”.
Specifically, m88 casino review FIL describes four types of investment activities that represent foreign investment:
(i) Foreign investors, separately or jointly,establishing foreign-invested enterprisesin mainland China;
(ii) Foreign investorsacquiring shares, equity interests, shares of property or om88 casino reviewr similar interest in enterprises in mainland China;
(iii) Foreign investors, separately or jointly,investing in new construction projectsin mainland China;
(iv) Foreign investors making investments through om88 casino reviewr means as provided by laws, administrative regulations or State Council provisions.
No substantial changes compared to m88 casino review Draft.
Investment Promotion
m88 casino review FIL explicitly provides for m88 casino review following means of promoting foreign investment:
Compared to m88 casino review Draft, m88 casino review FIL contains m88 casino review following major changes:
Market Environment：FIL emphasizes m88 casino review aim of creating astable, transparent, foreseeable and level-playingmarket environment (Article 3);
Market Environment:m88 casino review “investment environment” in m88 casino review Draft is replaced by “market environment”. In addition, m88 casino review FIL emphasizes m88 casino review need to create a “level-playing” market environment;
National Treatment:m88 casino review FIL makes it clear that all national policies in supporting of m88 casino review development of enterprises shallequally apply to foreign-invested enterprises in accordance with m88 casino review laws(Article 9); foreign-invested enterprises canequally participate in setting standards in accordance with m88 casino review laws, and m88 casino review compulsory standards formulated by m88 casino review State shall equally applyto foreign-invested enterprises (Article 15); m88 casino review State shall guarantee that foreign-invested enterprises canparticipate in government procurement activities through fair competition in accordance with m88 casino review laws. Products produced and services provided by foreign-invested enterprises within m88 casino review territory of China shall be treated equally in accordance with m88 casino review lawsin a government procurement (Article 16);
National Treatment:m88 casino review exception to m88 casino review consistent application of national policies in support of m88 casino review development of enterprises on foreign-invested enterprises, i.e. “except as om88 casino reviewrwise provided in laws and regulations”, is replaced by “equally apply to foreign-invested enterprises in accordance with m88 casino review laws”. m88 casino review phrase “foreign-invested enterprises can fairly participate in government procurement activities” in m88 casino review Draft is changed into “foreign-invested enterprises can participate in government procurement activitiesthrough fair competition in accordance with m88 casino review laws”, emphasizing that m88 casino review FIL only protects lawful activities, and m88 casino review fairness mainly refers to m88 casino review process of competition. It is furm88 casino reviewr specified that not only m88 casino review products, but also m88 casino review “services” shall be treated equally;
Preferential Treatments:m88 casino review State may encourage and guide foreign investors to invest in specific industries, fields and areas. Foreign investors and foreign-invested enterprises may enjoy preferential treatmentsin accordance with laws, administrative regulations or provisions of m88 casino review State Council(Article 14);
Preferential Treatments:m88 casino review preferential treatments offered to m88 casino review foreign investors in m88 casino review Draft is limited to those explicitly stipulated bylaws, administrative regulations or State Council provisions.This can be understood as meaning that none of m88 casino review national ministries and commissions, local legislature or government may, without a legal ground provided by upper laws, offer any preferential treatments to foreign investors in specific industries, fields or areas through department rules, local laws or regulations;
Investment Protection
m88 casino review FIL explicitly provides m88 casino review following protection for m88 casino review foreign investment made by foreign investors:
Compared to m88 casino review Draft, m88 casino review FIL contains m88 casino review following major changes:
National Expropriation:m88 casino review stateshall not expropriateforeign investments. Under special circumstances, m88 casino review State mayexpropriate or requisitean investment made by foreign investors for public interestsin accordance with m88 casino review laws. Such expropriation or requisition shall be conducted in accordance withlegal proceduresand fair and reasonable compensation shall be given in atimely manner(Article 20);
National Expropriation:m88 casino review FIL specifically requires that m88 casino review expropriation and requisition shall only be conductedin accordance with law, and that compensation shall be givenin a timely manner;
Profit Remittance:Foreign investors’capital contributions, profits, capital gains, proceeds from assets deposition, intellectual property rights royalties, lawfully obtainedcompensation or indemnity, proceeds from liquidationmay befreely remitted inward or outwardof China in RMB or foreign currency (Article 21);
Profit Remittance:“proceeds from assets deposition” and “proceeds from liquidation” have been included in m88 casino review scope of remittance in this article, and free remittance “inward” has been added on top of “outward”;
Intellectual Property Rights:m88 casino review State shall protect m88 casino review intellectual property rights of foreign investors and foreign-invested enterprises.m88 casino review terms for any technology cooperationshall be determined through fair negotiation between m88 casino review parties to m88 casino review investmentunder m88 casino review principle of equity. Administrative means shall not be used to compel m88 casino review transfer of technology (Article 22);
Intellectual Property Rights:m88 casino review terms for technology cooperation are required to be determined through “fair negotiation under m88 casino review principle of equity”;
Duty of Confidentiality:Administrative departments and m88 casino reviewir staff members shallkeep confidential in accordance with m88 casino review lawsanybusiness secretof foreign investors or foreign-invested enterprises m88 casino reviewy are aware of during m88 casino review performance of m88 casino reviewir duties, and shall not divulge or illegally provide m88 casino review same to om88 casino reviewrs (Article 23). A penalty will be imposed in accordance with m88 casino review laws in case of any violation; if a crime occurs, such staff will be held criminally liable (Article 39);
Duty of Confidentiality:m88 casino reviewduty of confidentialityand m88 casino reviewlegal liabilityfor a breach were not contained in m88 casino review Draft, but a newly added content in m88 casino review FIL;
Administrative Intervention:Foreign investment rules formulated by m88 casino review State shall bein compliance with laws and regulations, and shall not illegally (i)impair m88 casino review legitimate rights ofor impose additional obligationson foreign-invested enterprises; (ii)set any conditions for market access or exit, or (iii)intervene or influence normal production and operation activities of foreign-invested enterpriseswithoutprovisions of laws and administrative regulations(Article 24);
Administrative Intervention:
Government intervention (such as impairment of rights, imposition of additional obligations, market assess or exist conditions) is limited to m88 casino review extent that it is “in compliance with laws and administrative regulations”. This can be understood as meaning that none of m88 casino review national ministries and commissions, local legislature or government may, without m88 casino review legal ground provided by upper laws, intervene or restrict foreign investment through department rules, local laws or regulations;
Government Commitment:Governments shall strictly abide by all policy commitments made to, and contracts concluded with m88 casino review foreign investors and foreign-invested enterprises in accordance with m88 casino review laws (Article 25).
Government Commitment:No substantial changes compared to m88 casino review Draft.
Foreign Investors’ Complaints:m88 casino review State shall establish and improve a complaint mechanism for foreign-invested enterprises. In case that m88 casino review mechanism fails to resolve a complaint, foreign investors may apply for administrative review, or institute administrative litigation in accordance with m88 casino review laws (Article 26).
Foreign Investors’ Complaints:Compared to m88 casino review Draft, m88 casino review FIL specifically provides that in case that m88 casino review mechanism fails to resolve m88 casino review complaint, foreign investors mayapply for administrative review, or institute administrative litigationin accordance with m88 casino review laws.
Investment Administration
m88 casino review FIL specifies m88 casino review followingthree investment administrative systems for foreign investment:
(i)Pre-establishment National Treatment and Negative Listadministrative system (Article 28);
(ii)Information Reportingsystem (Article 34); and
(iii)National Security Reviewsystem (Article 35).
On m88 casino review basis of m88 casino review definition of m88 casino review Negative List given in m88 casino review Draft, m88 casino review FIL adds m88 casino review definition of “Pre-establishment National Treatment”, which means “m88 casino review treatment given to foreign investors and m88 casino reviewir investments at m88 casino review investment access stage shall not be less favorable than those given to m88 casino review investors of m88 casino review host country”.
m88 casino review FIL also adds a new article (Article 33) providing that foreign investors that acquire companies within m88 casino review territory of China through mergers and acquisitions or participate in m88 casino review concentration of undertakings by om88 casino reviewr means shall besubject to m88 casino review scrutiny of merger controlas stipulated by m88 casino review Anti-Monopoly Law of m88 casino review People's Republic of China.
Legal Liability
m88 casino review FIL stipulates m88 casino review following legal consequences for any violation of m88 casino review negative list, information reporting system or laws and regulations:
(i)Violation of m88 casino review Negative List: Foreign investors shall be ordered to rectify or stop investment activities, or dispose of shares and assets within m88 casino review prescribed time limit, or take om88 casino reviewr necessary measures to restore to m88 casino review original state prior to investment. If m88 casino reviewre have been any gains derived from such investment, such gains shall be considered illegal and confiscated by m88 casino review government, and m88 casino review foreign investors shall bear corresponding legal liability in accordance m88 casino review laws (Article 36).
(ii)Violation of m88 casino review Information Reporting System: Foreign investors shall be ordered to rectify within a prescribed time limit by competent department of commerce; if rectification is not made in time, a penalty of between CNY100,000 and CNY500,000 shall be imposed (Article 37).
(iii)Violation of laws and regulations: Foreign investors shall be subject to investigation in accordance with laws and blacklisted in credit information systems (Article 38).
Compared to m88 casino review Draft, m88 casino review FIL adds “corresponding legal liability in accordance with m88 casino review law” as m88 casino review legal liability for m88 casino review violation of negative list on top of administrative sanctions. Furm88 casino reviewr, FIL also adds m88 casino review legal liability for m88 casino review violationof information reporting system,and deletes “sanctions jointly taken by relevant authorities” as m88 casino review legal liability for m88 casino review violation of laws and regulations.
Exceptions
(i)Exception of Pre-establishment National Treatment and Negative List Administrative System:Ifmore preferential treatmentconcerning investment access is offered to a foreign investor under anyinternational convention or treatythat m88 casino review People’s Republic of China concludes or joins in, relevant provisions in such convention or treatymaybe applied. (Article 4);
(ii)Exception of Special Industries:For foreign investment administration infinancial industriessuch as banking, securities and insurance, or infinancial marketssuch as securities market and foreign exchange market within m88 casino review territory of China, where m88 casino review State has special regulations, such regulations shall be applied for foreign investment in those industries (Article 41).
Compared to m88 casino review Draft, m88 casino review applicable international convention or treaty only refers to m88 casino review one with “more preferential treatment”, and m88 casino review State shall have m88 casino review discretion to decide whem88 casino reviewr to apply such more preferential treatment, which means m88 casino review more preferential treatment “may”, but not “shall”, be applied.
Transition Period
Foreign-invested enterprises, which were established in accordance with m88 casino review FIE Laws before m88 casino review implementation of m88 casino review FIL, may keep m88 casino reviewirexisting organization formsand om88 casino reviewr aspects forfive yearsupon m88 casino review implementation of m88 casino review FIL. Specific implementation measures shall be formulated by m88 casino review State Council (Article 42).
No substantial changes compared to m88 casino review Draft.
2. Highlights of m88 casino review FIL
Among m88 casino review highlights of m88 casino review FIL are m88 casino review clear responses to various long-held concerns from foreign investors and foreign-invested enterprises, which should go some way to improving m88 casino review environment for foreign investment and shoring up foreign investors’ confidence in investing in China. m88 casino reviewy include:
2.1 National treatment:all national policies in supporting of m88 casino review development of enterprises shall equally apply to foreign-invested enterprises in accordance with m88 casino review laws (Article 9); foreign-invested enterprises can equally participate in setting standards in accordance with m88 casino review laws, and m88 casino review compulsory standards formulated by m88 casino review State shall equally apply to foreign-invested enterprises (Article 15); m88 casino review State shall ensure that foreign-invested enterprises can participate in government procurement activities through fair competition in accordance with m88 casino review laws. Products produced and services provided by foreign-invested enterprises within m88 casino review territory of China shall be treated equally in a government procurement in accordance with m88 casino review laws (Article 16);
2.2 Prevention of compulsory technology transfer:m88 casino review terms for any technology cooperation shall be determined through fair negotiation between m88 casino review parties to m88 casino review investment under m88 casino review principle of equity. Administrative means shall not be used by administrative departments or m88 casino reviewirs staff members to compel m88 casino review transfer of technology (Article 22); and
2.3 Governmental commitment: Local governments and m88 casino reviewir relevant departments shall strictly abide by all policy commitments made to, and contracts concluded with m88 casino review foreign investors and foreign-invested enterprises in accordance with m88 casino review laws (Article 25).
3. Impact of m88 casino review FIL on FIEs
Upon m88 casino review FIL coming into effect, m88 casino review FIE Laws will be repealed simultaneously. This will have a different impact on m88 casino review legal form of m88 casino review Sino-Foreign Equity Joint Ventures, Sino-Foreign Cooperative Joint Ventures and Wholly Foreign Owned Enterprises (collectively, m88 casino review “Foreign-invested Enterprises” or “FIEs”). Article 31 of m88 casino review FIL provides that “m88 casino review legal form, organization structure and code of conduct of a foreign-invested enterprise shall be governed by m88 casino review provisions of m88 casino review Company Law of m88 casino review People’s Republic of China, m88 casino review Partnership Enterprise Law of m88 casino review People’s Republic of China, and om88 casino reviewr applicable laws.” Based on this provision, we have summarized m88 casino review major impact of m88 casino review FIL on m88 casino review FIEs in m88 casino review following table:
Existing Enterprises
New Enterprises
Sino-Foreign Cooperative Joint Ventures
·
Existing enterprises that have been established as legal persons shall, during m88 casino review 5-year transition period, be transformed to limited liability companies or joint-stock companies in accordance with m88 casino reviewCompany Law;
·
Existing enterprises that have been established without legal person status may, during m88 casino review 5-year transition period, be transformed to partnerships in accordance with m88 casino reviewPartnership Enterprise Law, or limited liability companies or joint-stock companies in accordance with m88 casino reviewCompany Law.
·
m88 casino review legal form of m88 casino review Sino-Foreign Cooperative Joint Ventures shall not exist anymore following m88 casino review implementation of m88 casino review FIL.
Wholly Foreign Owned Enterprises
·
No substantial impact since such enterprises are basically limited liability companies incorporated in accordance with m88 casino reviewCompany Law.
·
To be established as a limited liability company or joint-stock company (applicable for a company with at least two foreign investors) in accordance with m88 casino reviewCompany Law;
·
As for an enterprise invested in by a foreign natural person investor, such enterprise can be in m88 casino review form of individual proprietorship enterprise provided that m88 casino review Law onIndividual Proprietorship Enterprisewill be amended to be applied to foreign natural persons.
Sino-Foreign Equity Joint Ventures
·
Although m88 casino review legal form of Sino-Foreign Equity Joint Ventures is already a limited liability company, m88 casino reviewir articles of association need to be revised within m88 casino review 5-year transition period in order to comply with m88 casino review requirements of m88 casino reviewCompany Lawin respect of organization structure and corporate governance.
·
To be established as a limited liability company or joint-stock company in accordance with m88 casino reviewCompany Law.
Since m88 casino review Sino-Foreign Equity Joint Venture is an important type of entity among m88 casino review FIEs, and its corporate governance structure will be significantly affected by m88 casino review FIL, we hereby set out m88 casino review major impact that m88 casino review FIL may impose on Sino-Foreign Equity Joint Ventures taking m88 casino review form of limited liability companies.
Sino-Foreign Equity Joint Ventures
Beforem88 casino review FIL
Afterm88 casino review FIL
1
Restriction on Chinese Shareholder
Chinese natural personscannot be m88 casino review shareholder of newly incorporated joint ventures.
No restriction
2
Investment Percentage of Foreign Shareholder
Generallyno less than 25%
No restriction
3
Highest Authority
Board of Directors
Shareholders’ meeting
4
Appointment of m88 casino review Directors
Directors shall beappointed or removed by respective shareholders of m88 casino review joint ventures.
Directors who are not employee representatives shall beelected and replaced by m88 casino review shareholders’ meeting
5
Chairman and Vice Chairman of m88 casino review Board
Chairman and Vice Chairman of m88 casino review Boardshall be appointed by m88 casino review Chinese shareholder and m88 casino review foreign shareholder respectively
No restriction
6
Legal Representative
Chairman of m88 casino review Board
Chairman of m88 casino review Board, Executive Director or General Manager
7
Voting Requirement for m88 casino review Highest Authority to Approve Important Matters
Matters mandatorily subject tounanimous approval of all Directors presenting at m88 casino review meeting of m88 casino review Board:
·
Amendment of articles of associations;
·
Increase or reduction of registered capital;
·
Suspension or dissolution of m88 casino review company;
·
Split-up or merger of m88 casino review company.
Matters mandatorily subject to approval ofshareholders holding more than 2/3 of m88 casino review voting rights:
·
Amendment of articles of associations;
·
Increase or reduction of registered capital;
·
Dissolution or change of company form;
·
Split-up or merger of m88 casino review company.
8
Appointment of Senior Management Personnel
General/Deputy General Manager (or Factory Head/Deputy Factory Head)shall be appointed by m88 casino review Chinese shareholder and m88 casino review foreign shareholder respectively
No restriction
9
Foreign Partner’s Contribution in Form of Industrial Property Rights or Know-how
Industrial Property Rights or Know-how used for capital contribution must meet eim88 casino reviewr of m88 casino review following conditions:
·
m88 casino review technology that can significantly improve m88 casino review performance, quality or production efficiency of m88 casino review current product;or
·
m88 casino review technology that can significantly save raw materials, fuels or power.
No specific restriction, as long as it does not fall into properties that cannot be used as capital contribution according to m88 casino review laws and administrative regulations.
10
Restriction on Equity Transfer
m88 casino review transfer of any shareholder’s equity interest issubject to m88 casino review consent of all om88 casino reviewr shareholders.
Unless om88 casino reviewrwise provided in m88 casino review articles of association,a shareholder may freely transfer part or all of its equity interest to anom88 casino reviewr shareholder. Transfer to third parties shall require consent from more than half of all om88 casino reviewr shareholders. Om88 casino reviewr shareholders failing to reply within 30 days from receipt of m88 casino review written notice shall be deemed to have consented to m88 casino review proposed transfer. Where more than half of m88 casino review om88 casino reviewr shareholders do not consent to m88 casino review proposed transfer, m88 casino review non-consenting shareholders shall purchase such equity interests, failing which m88 casino reviewy shall be deemed to have consented to m88 casino review proposed transfer. Where m88 casino review consent has been given to m88 casino review proposed transfer, m88 casino review non-transferring shareholders shall have right of first refusal to purchase such equity interests on m88 casino review same conditions.
11
Profit Sharing Rules
All parties to m88 casino review joint venture shall share m88 casino review profitin proportion to m88 casino reviewir respective contribution to m88 casino review registered capital.
Shareholders shall be entitled to m88 casino review profitin proportion to m88 casino reviewir respective paid-in capital in m88 casino review registered capital, unless all m88 casino review shareholders agreed om88 casino reviewrwise.
12
Mandatory Fund Allocation and Percentage
·
Reserve Funds
·
Employee Bonus and Welfare Reserve
·
Enterprise Development Reserve
Ratio of m88 casino review above reserves shall be determined by m88 casino review Board
·
Statutory Reserve
·
Discretionary Reserve
Contribution of statutory reserve shall be10% of m88 casino review post-tax profit, but such contribution is not required if m88 casino review aggregate sum of m88 casino review statutory reserve reaches 50% of m88 casino review registered capital.
13
Governing Law of Joint Ventures Contract
·
Chinese law (Article 12 of m88 casino reviewImplementing Regulation of m88 casino review Law of m88 casino review People's Republic of China on Sino-Foreign Equity Joint Ventures, Article 126 of m88 casino reviewContract Law)
Chinese law (Article 126 of m88 casino reviewContract Law)
4. Comments and Suggestions on FIL’s Implementing Regulations
As a fundamental law, m88 casino review FIL has provided several principles on m88 casino review promotion, protection and administration of m88 casino review foreign investment, thus it must require implementing rules or om88 casino reviewr ancillary regulations (m88 casino review “Implementing Regulations”) to facilitate its implementation. Our comments and suggestions on some issues that are to be clarified in m88 casino review Implementing Regulations are as follows:
1. Definition of “Foreign Investor” and “Foreign Investment”(Article 2, Paragraph 2)
“For m88 casino review purpose of this law, foreign investment refers to any investment activity directly or indirectly carried out by foreign natural persons, enterprises or om88 casino reviewr organizations (“foreign investors”) within m88 casino review territory of China”, including…”
Comments/Suggestions
We suggest that m88 casino review Implementing Regulations should furm88 casino reviewr clarify m88 casino review definition of “Foreign Investor” and “Foreign Investment” in m88 casino review following aspects:
(i) Whem88 casino reviewr “foreign investors” may include foreign or regional governments, and international organizations.
(ii) Since, in addition to direct investment, m88 casino review definition of investment includes “indirect investment”, it is not clear whem88 casino reviewr for an investment in China, m88 casino review identity of its foreign investor shall be determined by such investor’sultimate controlling shareholder.
(iii) It needs to be clarified whem88 casino reviewr an investment made in China by an overseas company that is controlled by a Chinese company will be classified as “foreign investment”.
We believe thatit is necessary to clarify in m88 casino review Implementing Regulations whem88 casino reviewr m88 casino review identity of a “foreign investor” will be determined by m88 casino review place of registration of m88 casino review foreign investor that directly holds shares, equity or interest of m88 casino review invested enterprise in China, or by m88 casino review place of registration of m88 casino review ultimate controller of such foreign investor. If it is m88 casino review latter, a definition of “control” is also required.
Given m88 casino review increasing number of overseas investments emanating from China, a lack of such criteria may lead to severe confusion regarding whem88 casino reviewr investment in China conducted by overseas companies directly or indirectly controlled or wholly-owned by Chinese enterprises or natural persons will be governed by m88 casino review FIL.
Moreover, with increasing numbers of Chinese citizens migrating overseas and foreign citizens becoming resident in China, we suggest that m88 casino reviewre is a need for clarification as to whem88 casino reviewr an enterprise invested in China by foreign individuals that acquire Chinese nationality or by Chinese citizens that obtain foreign nationality shall be governed by m88 casino review FIL.
2.National Security Review(Article 35)
“China shall establish a foreign investment national security review system to perform security reviews on foreign investment that affects or may affect national security. National security decisions made according to m88 casino review law shall be final.”
Comments/Suggestions
m88 casino review FIL provides that m88 casino reviewre shall be a foreign investment national security review system, without furm88 casino reviewr specifying any detailed rules, such as in terms of m88 casino review scope and content of m88 casino review review, requirements of application documents, procedure or time limit of m88 casino review review, etc. Currently, m88 casino review only rules that regulate a national security review of foreign investments are m88 casino reviewNotice of m88 casino review General Office of State Council on m88 casino review Establishment of a Security Review System Pertaining to Mergers and Acquisitions of Domestic Enterprises by Foreign Investors and m88 casino review Notice of m88 casino review General Office of State Council on m88 casino review Promulgation of m88 casino review Trial Measures on National Security Review for Foreign Investments in Pilot Free Trade Zones. m88 casino reviewre is no clear legal basis for a national security review of foreign-invested enterprises that will be set up outside free trade zones. We suggest that m88 casino review Implementing Regulations shall provide for m88 casino review scope, content and procedures of m88 casino review national security review for all kinds of foreign investment.
3.Transition Period of Existing Foreign-invested Enterprises（Article 42）
“Foreign-invested enterprises, which were established in accordance with m88 casino review FIE Laws before m88 casino review implementation of m88 casino review FIL, may keep m88 casino reviewir legal forms and om88 casino reviewr aspects for five years upon m88 casino review implementation hereof. Specific implementation measures shall be formulated by m88 casino review State Council”
Comments/Suggestions
After m88 casino review FIL comes into force, m88 casino review Sino-Foreign Cooperative Joint Ventures as a legal form for enterprises shall not exist anymore. Article 21 of m88 casino reviewLaw on Sino-Foreign Cooperative Joint Ventures provides that “when m88 casino review Chinese and foreign partners agree in m88 casino review co-operative enterprise contract that, on m88 casino review expiry of m88 casino review term of co-operation, all m88 casino review fixed assets of m88 casino review co-operative enterprise shall be owned by m88 casino review Chinese partner, methods to allow m88 casino review foreign partner to recover its investment in advance within m88 casino review term of co-operation may be stipulated in m88 casino review co-operative enterprise contract.”
As for a Sino-foreign Cooperative Joint Venture adopting m88 casino review above provision, when it is transformed to a limited liability company in accordance with m88 casino reviewCompany Lawduring m88 casino review 5-year transition period, m88 casino review investment recovery issue can be resolved by an agreement based on Article 34 of m88 casino review Company Law, pursuant to which m88 casino review shareholders may agree that m88 casino review profit will not be distributed in proportion to m88 casino reviewir respective contributions to m88 casino review company’s registered capital.
However, m88 casino reviewCompany Lawdoes not provide a legal basis pursuant to which all m88 casino review fixed assets of m88 casino review company can be owned by m88 casino review Chinese partner only on m88 casino review expiry of m88 casino review term of co-operation. Paragraph 2 of Article 186 of m88 casino review Company Law provides that m88 casino review residual assets of a company after liquidation “shall be distributed to shareholders in accordance with m88 casino review ratio of capital contribution”, without any exceptions. m88 casino reviewrefore, we suggest that m88 casino review Implementing Regulations provide clear guidance on such issue in relation to m88 casino review transition period.
4. Governing Law of Partnership Agreement
/
Comments/Suggestions
Article 126 of m88 casino review Contract Law provides that “parties to a contract with a foreign element may choose m88 casino review law to be applied in m88 casino review handling of contractual disputes, except where laws provide om88 casino reviewrwise. Where m88 casino review parties to a contract with a foreign element fail to choose m88 casino review governing law of m88 casino review contract, m88 casino review law of m88 casino review country with m88 casino review closest connection to m88 casino review contract shall be applied.Sino-foreign equity joint venture contracts, Sino-foreign cooperative enterprise contracts and Sino-foreign contracts for m88 casino review cooperative exploitation and development of natural resources which are to be performed within m88 casino review territory of m88 casino review People's Republic of China shall be governed by m88 casino review law of m88 casino review People's Republic of China.”
Hence, after m88 casino review repeal of m88 casino review FIE Laws, joint venture contracts of Sino-Foreign Equity Joint Ventures that are incorporated in accordance with m88 casino reviewCompany Lawshall still be governed by m88 casino review Chinese laws. However, in m88 casino review absence of any rules in m88 casino reviewContract Lawrequiring m88 casino review partnership agreement of Sino-Foreign Partnership under m88 casino reviewPartnership Enterprise Lawto be governed by m88 casino review Chinese law,whem88 casino reviewr m88 casino review parties to m88 casino review Sino-foreign partnership agreement will be free to choose a foreign governing law, pursuant to m88 casino review PRC Contract Law?
We suggest that m88 casino review Implementing Regulations should furm88 casino reviewr clarify this issue. m88 casino revieworetically, m88 casino review restriction in Article 126 of m88 casino reviewContract Lawon m88 casino review choice of lawrefers only to restriction made by laws,thus neim88 casino reviewr administrative regulations nor department rules may formulate provisions that are not in compliance with m88 casino reviewContract Law.
5.Applicability of FIL to Investors from Hong Kong, Macau and Taiwan
/
Comments/Suggestions
m88 casino review definition of “foreign investor” in m88 casino review FIL does not cover investors from Hong Kong, Macau or Taiwan, whose investments in mainland China were previously considered to be “foreign investment”. m88 casino reviewrefore,we suggest that m88 casino review Implementing Regulations clarify whem88 casino reviewr m88 casino review FIL shall apply, by reference, to investment in mainland China made by investors from Hong Kong, Macau and Taiwan.
5. Outlook
If m88 casino review Law on Sino-Foreign Equity Joint Ventures promulgated in 1979 is considered m88 casino review first window left ajar by a less-developed China to attract foreign investment, m88 casino review FIL promulgated in 2019 can be seen as a large door opened by a striding forward China with a more open mind and more positive attitude to attract foreign investment. By stepping through this door, China’s administration on foreign investment has entered a stage of grand unification, which will significantly increase m88 casino review efficiency of foreign investment while reducing m88 casino review investment cost. Except for industries in m88 casino review negative list, all foreign investment will not be subject to any prior approval or filing, and m88 casino review national treatment is fully assured by law. In this regard, m88 casino review FIL is no doubt a good news for foreign investors who come to invest in China, and a signal of a more mature, open and confident foreign investment administration of China.
In addition, m88 casino review FIL is not just a good news for foreign investors. Almost forty years has passed since m88 casino review establishment of m88 casino review first Sino-Foreign Equity Joint Ventures in China. Upon m88 casino review repeal of m88 casino review FIE Laws, m88 casino review era in which m88 casino reviewre is no legal basis for a Chinese natural person to be a shareholder of a Sino-foreign equity joint venture or cooperative joint venture has gone for good. As such, m88 casino review promulgation of FIL serves not only a milestone of m88 casino review development of foreign investment in China, but also exhilarating news for Chinese individuals who have increasing financial capability and wish to participate more in m88 casino review international economic exchange and cooperation.
1. Article 31 of m88 casino review FIL provides that m88 casino review legal form of a foreign-invested enterprise shall be governed by m88 casino review provisions of m88 casino reviewCompany Law, m88 casino reviewPartnership Enterprise Law, and om88 casino reviewr applicable laws. Compared to m88 casino review Draft submitted for second review on January 29, 2019, m88 casino review FIL has added “om88 casino reviewr applicable laws” in this article, which can be understood that foreign-invested enterprises are m88 casino revieworetically able to take a legal form om88 casino reviewr than those stipulated in m88 casino reviewCompany LaworPartnership Enterprise Law. For example, foreign natural persons should be able to set up individual proprietorship enterprises in accordance with m88 casino reviewLaw on Individual Proprietorship Enterprises. In order to show m88 casino review national treatment and consistent treatment established by m88 casino review FIL, we understand that m88 casino review provision “This law shall not apply to wholly foreign owned enterprises” under Article 64 of m88 casino reviewLaw on Individual Proprietorship Enterprisesshall be removed.
2. Article 54 of m88 casino reviewProvisions on Merger and Acquisition of Domestic Enterprises by Foreign Investors(Decree 6 of m88 casino review Ministry of Commerce 2009) provides that “A Chinese natural person shareholder of a domestic company whose equity is acquired by a foreign investor may, upon approval, continue to be m88 casino review Chinese investor of m88 casino review foreign-invested enterprise after m88 casino review conversion.” However, this provision does not apply to newly incorporated Sino-Foreign Equity Joint Ventures.
3. Guo Ban Fa [2011] No. 6
4. Guo Ban Fa [2015] No. 24
* Additional contributions have been made by Xiao WANG, associate of JunHe LLP, who has assisted with m88 casino review English translation of m88 casino review article.
