Chinese Foreign Investment Laws: A Review from the Perspective of Policy-Oriented Jurisprudence

I. IntroductionAlthough still in an evolutionary process, China's legal regime on foreign investment already plays a significant role in safeguarding and promoting foreign investments. It seems that the regime is embarking on a new stage because of the occurrence of events such as the negotiation of a Sino-US bilateral investment treaty (BIT ), the drafting of China's Model BIT and the abolition of tax incentives to encourage foreign investment.1 How do these events influence the regime and what will the regime become?According to the precepts of policy-oriented jurisprudence, such an inquiry should include five intellectual tasks: (i) the clarification of goals relating to the issue; (ii) the description of past trends in decision making; (iii) the analysis of conditions affecting the decision making process; (iv) the projection of future trends in decision making; and (v) the conception and evaluation of policy alternatives.2 Guided by, although not fully abiding by, this approach, the author will present a comprehensive review of China's legal regime on foreign investment and an analysis of its prospects. It is hoped that this review will be of reference value to the policy makers involved in this process, including treaty negotiators, domestic and foreign investors, government agencies and nongovernment organisations.II. The Current Status of China's Legal Regime on Foreign InvestmentUnlike some other countries, China does not have a comprehensive legal code covering foreign direct investment, or a so-called 'foreign investment law'. Most scholars have examined Chinese foreign investment laws3 from a formalistic perspective and have drawn the conclusion that, although they seem to be somewhat scattered and random, these laws can still be structured in a hierarchical order. In comparison, this author will depict Chinese foreign investment laws from a substantive perspective and divide them into four categories.A. Industrial policy guidance and foreign merger and acquisition reviewThe basic legislation on industrial policy is the Regulations on the Guidance of Foreign Investment (the 'Regulations').4 The main supporting document for the Regulations is the Catalogue for the Guidance of Foreign Investment Industries (the 'Catalogue').5 The Regulations and the Catalogue divide all foreign investment projects into four sub-categories: encouraged; restricted; prohibited; and permitted. The first three sub-categories are explicitly listed in the Catalogue, while all of those not mentioned are deemed to be included in the permitted sub-category. According to the Catalogue, some foreign investment projects are required to take the form of 'equity joint venture[s] or cooperative joint venture[s] only' or are subjected to 'domestic control' or 'relative domestic control'. 'Domestic control' means that Chinese investors will own 51% or more of the shares in the project. 'Relative domestic control' means that Chinese investors, as a whole, should own a larger proportion of shares than any one of the foreign investors involved in the project. As far as the development of the middle and western regions is concerned, China has also issued a Catalogue of Leading Industries in the Midwest Area for the Guidance of Foreign Investment.6 In addition, a Catalogue of Encouraged Hi-tech Products for Foreign Investment7 was adopted in order to 'accelerate the pace in introducing advanced technologies from abroad' and 'further improve the quality and level of foreign investment'.Mergers and acquisitions (M&A) carried out by foreign investors in China are subject to anti-monopoly and national security reviews which were originally provided in the Provisional Regulations on the Takeover of Domestic Enterprises by Foreign Investors.8 These reviews are now stipulated, in detail, in the Chinese Antimonopoly Law9 and the State Council's Notice on the Establishment of Security Review System on the Merger and Acquisition of Domestic Enterprises by Foreign Investors,10 respectively. …