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China economy
OpinionComment
SCMP Editorial
SCMP Editorial

Editorial | New law a major step in protecting interests of foreign investors

  • If and when the trade war is settled, China needs to demonstrate its readiness to provide a safe, fair and attractive business environment for overseas firms and investors
  • The new foreign investment law will help achieve that

Reading Time:2 minutes
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Some groups want the foreign investment law to go further, saying the current wording is too vague. Photo: Bloomberg
SCMP Editorial
Beijing is pulling out all the stops to make foreign investors happy. Chief among these is a new foreign investment law being rushed out by China’s legislature to meet the United States’ trade-war demands. There is no doubt the new legislation is a significant step towards protecting the interests of foreign firms and investors. But it remains a work in progress as people still have to be convinced by its effectiveness and Beijing’s willingness to enforce it.
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The new law aims to address complaints raised by Washington and others by guaranteeing fair treatment to foreign investors in China, prohibiting forced technology transfers, and barring Chinese officials from leaking commercial secrets obtained from outside sources. And to reassure investors from Hong Kong, Macau and Taiwan, Zhang Xiaoming, director of the central government’s Hong Kong and Macau Affairs Office, took the trouble to spell out that it would not change the legal status of their investments, which would still be considered “foreign” and be accorded the same treatment.

However, some groups want the legislation to go further. The American Chamber of Commerce in China, for example, says its language needs to be more specific and that there should have been more extensive consultation and input from industry stakeholders. This is understandable. But as its effects will be fundamental and far-reaching, it will take time for the country and individual industries to adapt to new standards and practices. It will set a benchmark for Chinese companies to follow and regulators to enforce.

There are concerns that the law’s broad protections will be overridden by other industry-specific regulations and the broad scope of a proposed national security review. While it aims to level the playing field for foreign investors, it also contains general restrictive clauses that foreign firms in China are required to follow. For instance, according to Article 35 of the draft legislation, Beijing can conduct national security reviews of foreign investments when it sees the need.

Outside investors understandably want laws that work heavily in their favour. But they also need to consider balance and reciprocity. Major Western countries, including the US, all have national security and emergency laws that can override commercial interests. Not to do so will offer carte blanche to freewheeling and dealing by industries at the expense of the national interest and security. It is true that governments need to exercise such powers judiciously and not abuse them. But if Western governments claim such a prerogative, it would be hard to argue China should not have it.

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If and when the trade war is settled, China needs to demonstrate its readiness to provide a safe, fair and attractive business environment for outside investors. The new law is a big step forward.

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