China approves foreign investment law, possible US olive branch

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China’s rubber-stamp parliament approved Friday a foreign investment law that may serve as an olive branch in trade talks with the United States, but it received a lukewarm welcome from business groups.

The legislation aims to address long-running grievances from foreign firms including stronger protections for intellectual property, but the US and European chambers of commerce voiced concerns that they were not given enough time to give their input.

The National People’s Congress voted 2,929 in favour of the law — with eight against and eight abstentions – barely three months after a first draft was debated, an unusually quick turnaround for the legislature, which meets once a year.

The move comes as US and Chinese negotiators hold complex talks aimed at resolving a months-long trade war that has pounded businesses with tariffs on $360 billion in two-way commerce.

US President Donald Trump said Thursday the negotiations should wrap up within four weeks, adding: “We are getting what we have to get.”

China’s top trade negotiator, Liu He, held phone talks with US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer, with the official Xinhua news agency saying they made “substantial progress”.

The bill will eliminate the requirement for foreign enterprises to transfer proprietary technology to Chinese joint-venture partners and protect against “illegal government interference” – major sticking points in the trade negotiations.

The legislation will come into force on January 1, 2020, according to Xinhua.

China will also amend its intellectual property law and “introduce a punitive damages mechanism to ensure that all infringements will be seriously dealt with”, Chinese Premier Li Keqiang told reporters at the end of the parliament’s two-week session.

The changes will “ensure violators have no place to hide”, he said.

Under the bill, foreign investors will enjoy the same privileges as Chinese companies in most sectors, except those placed on “negative lists”, officials say.

Li said China will soon announce shorter negative lists and continue to trim them in future, “increasing the scope of what is not prohibited”.

Tim Stratford, chairman of the American Chamber of Commerce in China, said “the last minute efforts are appreciated”.

But, he added, the changes “only address a small slice of the overall set of concerns our members have about the uneven playing field foreign companies encounter in China”.

The chamber was concerned about vague language in provisions that allowed local governments to expropriate investments that “harm public interest” and the inability to appeal against the outcome of national security reviews.

Jacob Parker, Beijing-based vice president at the US-China Business Council, welcomed the “positive language” in the bill but added that “real investment on the ground will depend on how narrowly tailored those negative lists are going forward”.

Kyle Freeman, a lawyer at Dezan Shira & Associates, said businesses will still need to jump “several hurdles” to gain market access.

“There are continued concerns that the on-the-ground reality of industry-specific laws, regulations, and local administrative approvals… may impede full market access at the implementation level despite provisions in the negative list,” he told.

The European Union Chamber of Commerce in China had earlier complained that Beijing was rushing the investment law to appease the United States.

The latest revisions of the legislation have yet to be made public.

But a source who saw the latest draft told that it includes a new article on protecting foreign companies’ commercial secrets.

It also fleshes out criminal penalties for officials who leak confidential information they obtain from overseas businesses, the source added.

“I think we can safely assume that this language is a result of the trade negotiations as it was slipped in at the last minute,” Parker said.