The Foreign Investment Law gets wings: draft implementation regulations released for public consultation

Following the ground-breaking People's Republic of China (PRC) Foreign Investment Law (FIL) which unifies and replaces the main existing rules governing foreign invested enterprises (FIEs) and their activities, namely the Sino-Foreign Equity Joint Venture, the Sino-Foreign Cooperative Joint Venture Law, and the Wholly Foreign-Owned Enterprise Law (collectively the FIE Laws) being voted into law on 15 March 2019, the Ministry of Justice recently released the long-awaited draft PRC Foreign Investment Law Implementation Regulations (the Draft Implementation Regulations), to seek public comments.

The most obviously noticeable feature of the Draft Implementation Regulations was that they came in the form of a surprisingly short document, comprising of only five chapters and 45 articles. They also "clear the decks" by expressly repealing the main implementing rules and regulations for the FIE Laws.

The Draft Implementation Regulations, if enacted, will come into force on 1 January 2020, simultaneously with the FIL. The most striking thing about the Draft Implementation Regulations is how they are still pitched at a very generic, vehicle-neutral, detail-light level. Unless the next batch of implementing rules go in a different direction, it would appear that we are indeed entering a different paradigm for modern FIEs where China is no longer seeking to micro-manage how you run every aspect of your FIE, but whose role is now more like providing the four corners of the "playground" within which you are more or less free to determine what you do, as long as you do not stray across the boundaries that will largely, universally, and equally apply to FIEs and domestic capital businesses going forward.

What we have now, may not be enough to ensure that FIEs have enough to take flight, but it is a good start. The combination of the FIL and the Draft Implementation Regulations do take us to a better place overall, from just about every angle you look at it. The benefits may be more obvious for the greenfield operations starting after 1 January 2020 which start with a FIL-based "clean sheet", and less obvious for legacy FIEs where moving over to the (FIL) regime is likely to involve a delicate renegotiation between joint venture partners which may re-open unresolved historical issues.

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