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China’s Foreign Investment Law: What Canadian companies need to know

The Chinese National People’s Congress enacted China’s Foreign Investment Law (FIL) on March 15, 2019. It entered into force on January 1, 2020. The FIL is the new basic law governing foreign investment in China, marking a new era of China’s foreign investment legal framework.

The FIL replaces:

Does the FIL create new market access for Canadian companies?

The FIL establishes core principles for the promotion, protection and market access of foreign investment. Many elements of the law are not new. However, by enshrining them in the law, China is showing a deeper commitment to treating foreign investors equally. For example, China commits to treating foreign-invested enterprises (FIEs) equally in:

China also agrees to:

If China fully implements these obligations, it will help create a more fair, transparent and predictable environment for foreign investors.

In addition, through the FIL, China aims to fully implement the principle of pre-establishment national treatment and the negative list for foreign investment. This means that if a sector is not included on the negative list, China will allow foreign investment in that sector to the same extent as domestic investment. 

For activities on the negative list, China could:

China’s National Development Reform Commission and Ministry of Commerce updates the negative list regularly and has incrementally reduced it in the past years.

How would the five-year transition affect Canadian companies?

The FIL provides a five-year transition period for existing FIEs established prior to January 1, 2020 in order to convert their corporate structure according to the Company Law or the Partnership Enterprise Law. Such conversion may require the review and re-negotiation of existing agreements and articles of association. Currently, there is no concrete guidance from the central government on the process, but we expect that implementing corporate conversion of existing FIEs will be largely in the hands of local authorities.  

Advice to Canadian companies regarding China’s foreign investment regime

In order to implement the FIL, China has been taking gradual steps to:

This process will likely take a few years. As such, we would like to share the following advice with Canadian business:

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