China: JT&N discuss Greater Opportunities in China
China has been making great efforts to provide a more friendly and attractive market environment for foreign investors for many years by ensuring equal market access and fair market competition, strengthening intellectual property rights protection, and protecting the legitimate rights and interests of foreign investors. Below are some prominent improvements for encouraging foreign direct investment in China.
1. China Joins the Apostille Convention
As announced by the spokeswoman of the Chinese Foreign Ministry on March 10, 2023, the Chinese Ambassador to the Netherlands has officially submitted the instrument of accession to the Convention of 5 October 1961 Abolishing the Requirement of Legalization for Foreign Public Documents (the “Apostille Convention”) on March 8, 2023. The Apostille Convention will become effective in China on November 7, 2023.
Huge Influence and Changes in Business and Legal Procedures
It is wonderful news and huge progress with regard to China’s accession to the Apostille Convention, which overturns the troublesome and prolonged procedures of authentication and legalization of documents that generated outside China and will be used in China and vice versa. It will greatly simplify the process and procedures for the legal documents to be used abroad.
Below table demonstrates the difference when a document originated in the US is to be used in China, by comparing the procedures before and after joining Apostille Convention:
(1) A public notary to notarize the document in the US;
(2) The Secretary of State to authenticate the notarized document; and
(3) The Chinese Embassy/Consulate in the US to legalize the notarized and authenticated document.
(1) A public notary to notarize the document in the US; and
(2) The Secretary of State to issue an apostille on the notarized document.
Usually it takes 30 to 60 days to complete the procedures from notarization to legalization, while after joining the Apostille Convention, it may only take around 10 days.
In theory and practically, it significantly reduces time and cost for investors coming from the contracting states to the Apostille Convention to complete the procedures for the documents to be used in China and vice versa, which will greatly facilitate international exchange and encourage the foreign investment and import and export activities in China.
2. Encourage List and Negative List
The Encouraged List is a short for “Catalogue of Industries Encouraged for Foreign Investment”, which lists the activities that the government wishes to promote (and for which various incentives are offered), with separate categories for activities encouraged either nationally or (even more liberally) in less developed Central-Western areas. Governmental incentives include, for example, tax incentives and duty free-import of production equipment. Local authorities may also offer rent reduction, local tax relief, salary subsidies and other incentives for investments in local priority industries, whether or not on the Encouraged List.
The Negative List, officially called “Special Administrative Measures for Foreign Investment Access”, is an official document prescribing the restrictive measures for foreign investors coming into particular industries. This document is updated periodically and has been steadily shrinking over the years. The Negative List of 2022 has 6 items less than that of 2020. The Negative List provides two types of control measures on foreign direct investment, namely prohibited and restrictive measures. Foreign investor is not allowed to invest and engage in prohibited activities, while where an activity is restricted, approval is required by relevant authorities.
3. Foreign Investment Law
The new Foreign Investment Law (the “Law”) is the basic law governing foreign direct investment in China, establishing core principles for the promotion, protection and market access of foreign investment.
One key feature of the Law is “national treatment”, as it promises that foreign enterprises and investors are being treated as equal to as domestic, local Chinese enterprises. The Law abolished long-standing separate sets of laws that treated them differently between wholly foreign-invested enterprises and Sino-foreign joint ventures. Under the Law, in the field of industry sectors that foreign investments are permitted, foreign invested enterprises of all types will be treated under the same legal frameworks as domestic Chinese companies, e.g. the Company Law.
This article is intended to provide a brief and general introduction on relevant information about foreign direct investment in China only and does not purport to cover all the necessary information relevant to any particular aspect. It does not make any recommendation upon which the investors may rely without taking further and more specific advice. The information in this article does not constitute legal advice. No representation or warranty, expressed or implied, is made as to the reliability, accuracy or completeness of the information, opinions and conclusions contained in this article. To the maximum extent permitted by law, JT&N and its employees, advisers and agents do not accept any responsibility or liability including, without limitation, any liability arising from fault or negligence on the part of any person, for any loss arising from the use of this article or its contents or otherwise arising in connection with it.
Chelsea Li, Senior Partner of JT&N, e-mail: firstname.lastname@example.org
Cindy Yu, Attorney of JT&N, e-mail: email@example.com