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China approves foreign investment law, possible US olive branch

By AFP   March 14, 2019 | 05:55 pm PT
China approves foreign investment law, possible US olive branch
The legislation aims to address long-running grievances from foreign businesses. Photo by AFP/Fred Dufour
China's rubber-stamp parliament approved a foreign investment law on Friday that was fast-tracked and may serve as an olive branch in trade talks with the U.S.

The legislation aims to address long-running grievances from foreign businesses, but the US and European chambers of commerce have voiced concerns that they were not given enough time to give their input.

The National People's Congress voted 2,929 in favour of the law -- with eight against and eight abstentions -- barely three months after a first draft was debated, an unusually quick turnaround for the legislature, which meets once a year.

The move comes as U.S. and Chinese negotiators have held complex talks aimed at resolving a months-long trade war that has pounded businesses with tariffs on $360 billion in two-way commerce.

U.S. President Donald Trump said Thursday the negotiations should wrap up within four weeks, adding: "We are getting what we have to get."

China's top trade negotiator, Liu He, held phone talks with U.S. Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, with the official Xinhua news agency saying they made "substantial progress".

The bill will eliminate the requirement for foreign enterprises to transfer proprietary technology to Chinese joint-venture partners and protect against "illegal government interference" -- major sticking points in the trade negotiations.

It also promises to abolish the "case-by-case approvals" process for foreign investments, officials say.

The changes will ensure that foreign investors will enjoy the same privileges as Chinese companies in most sectors, except those placed on a "negative list".

Beijing uses negative lists to identify areas that are either off-limits to non-state businesses or that require them to go through an application and approval process.

The American Chamber of Commerce in China said in a statement this week that it "welcomes and appreciates this legislative effort to improve the foreign investment climate".

But it added that it was concerned that "such an important and potentially far-reaching piece of legislation will be enacted without extensive consultation and input from industry stakeholders".

The provisions in the legislation were "quite general" and failed to address a number of concerns from foreign firms, including "the potential for unequal treatment" of businesses and the "broad scope" of national security reviews, the chamber said.

'Positive' additions

Despite the promised changes, businesses will still need to "jump... several hurdles" to gain market access, said Kyle Freeman, a lawyer at Dezan Shira & Associates.

"There are continued concerns that the on-the-ground reality of industry-specific laws, regulations, and local administrative approvals... may impede full market access at the implementation level despite provisions in the negative list," he told AFP.

The European Union Chamber of Commerce in China had earlier complained that Beijing was rushing the investment law to appease the United States.

A draft was presented to the parliament last week but the latest revisions have not been made public since then.

A source who has seen the document told AFP that it includes a new article on protecting foreign companies' commercial secrets.

It also fleshes out criminal penalties for officials who leak confidential information they obtain from overseas businesses, the source added.

The reported changes "are positive late additions that address concerns of US industry," Jacob Parker, vice president of China operations at the U.S.-China Business Council, told AFP.

"I think we can safely assume that this language is a result of the trade negotiations as it was slipped in at the last minute."

The law will come into effect from January 1, 2020, according to the unpublished draft.

Beijing sees the law as a tool to attract more foreign investment as its economy slows, with the government last week presenting a growth target of 6.0 to 6.5 percent this year, down from 6.6 percent growth in 2018.

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