The Ministry of Commerce of the PRC published a consultation draft of the new Foreign Investment Law on 19
January 2015, which would bring revolutionary changes to the PRC regulatory regime for foreign investment. Four
points are worth noting.
1. NO FOREIGN INVESTMENT APPROVALS REQUIRED EXCEPT FOR INVESTMENTS FALLING WITHIN A NEGATIVE LIST
•
Under the new law, a foreign investment would be regulated in the same way as a Chinese investment unless it
falls within a negative list.
•
The process for the approval of a foreign investment falling within the negative list would be streamlined. The
focus would be on “macro” issues such as any impact of the investment on national security or on the supply of
natural resources, whether the investment would bring to the PRC any advanced technology and the creation
of any job opportunities and would not otherwise be on the terms of the articles of association or the joint
venture contract of the foreign invested enterprise.
•
It is worth noting that the negative list, which would be a material part of the new regime, has not yet been
published.
2. DE FACTO CONTROL OF INVESTORS
•
Under the new law, if the de facto controller of a foreign investor is a Chinese investor, the investment by that
foreign investor would be treated as a Chinese investment. This means that under the new law, an investment
by a red chip company would be regarded as a Chinese investment (to which the negative list would not apply).
3. WIDER SCOPE OF FOREIGN INVESTMENTS CAUGHT – THE END OF VARIABLE INTEREST ENTITIES (VIE) STRUCTURES?
•
The new law would apply not only to greenfield investments and acquisitions but also to other forms of foreign
investments, including any control over a PRC enterprise (or any interest in it) by way of any contractual or
trust arrangement, a typical example of which would be a VIE structure.
•
The consultation draft of the new law does not provide whether existing foreign investments by way of VIE
structures falling within the negative list would be approved or prohibited altogether. The explanatory notes to
the consultation draft indicate that a possible approach would be to consider “various factors such as the de facto
controller of the foreign invested enterprise” in deciding whether any such foreign investment would be approved.
BRIEFING
JANUARY 2015
Revolutionary Changes to the Foreign
Investment Regulatory Regime in the PRC
January 2015
Revolutionary Changes to the Foreign Investment Regulatory Regime in the PRC
4. NATIONAL SECURITY REVIEW
•
While the new law would not make any material substantive changes to the national security review regime,
the regime, currently under a notice issued by the General Office of the State Council, would become part of
the new law, which means an upgrade of the requirement within the hierarchy of PRC laws and regulations.
The consultation draft of the new law can be found on the website of the Ministry of Commerce (http://tfs.
mofcom.gov.cn/article/as/201501/20150100871010.shtml). Comments can be given until 17 February 2015.
The new Foreign Investment Law reflects the PRC Government’s firm intention to streamline and reform the foreign
investment regulatory regime and to continue to open the PRC market. It is a significant positive development
which foreign investors should welcome.
If you have any questions or would like further information, please speak to Lisa Chung or your usual contact at
Slaughter and May.
LISA CHUNG, PARTNER
T +86 10 5965 0606 / +852 2901 7268
M +86 1391 198 2884 / +852 9162 0836
E [email protected]
© Slaughter and May 2015
This material is for general information only and is not intended to provide legal advice.
For further information, please speak to your usual Slaughter and May contact.
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