March 15, 2019 / 1:16 AM / 2 months ago

China will follow through on new investment law, premier pledges

BEIJING (Reuters) - Chinese Premier Li Keqiang, addressing scepticism over enforcement of a new foreign investment law, pledged on Friday that the government will follow through and do what the legislation promised in protecting foreign firms.

Chinese Premier Li Keqiang attends a news conference following the closing session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 15, 2019. REUTERS/Thomas Peter

Shortly before Li spoke at his annual news conference, China’s parliament approved the law that aims to create a transparent environment for foreign companies as China and the United States work to end a trade war.

The law, to replace existing regulations for joint ventures and wholly foreign-owned enterprises, is designed to ease concerns among foreign investors about the difficulties they face operating in the world’s second-largest economy.

Fast-tracked for approval at this month’s annual session of parliament, the law comes into effect on Jan. 1, 2020.

It will ban forced technology transfer and illegal government “interference” in foreign business practices, according to the latest draft. The full text has not yet officially been released.

While previous drafts stipulated criminal punishment for officials who violated the law, a last minute revision detailed by state media this week has strengthened those clauses.

The changes were widely seen within the U.S. business community as an effort, in part, by Beijing to address on paper some complaints underlying the bitter U.S.-China trade dispute.

BASIC POLICY

Li, asked about scepticism over the law, said there was no reason for China not to want to open up to the world, as it was the country’s basic policy.

“If opening up measures are being spoken of, then of course they will be honored,” he said.

The new law is about “standardizing government actions” and making sure officials act lawfully, and further measures will be coming to protect foreign investors, Li said.

Washington and Beijing have been locked in a tit-for-tat tariff battle as U.S. officials press China for an end to practices and policies they argue have given Chinese firms unfair advantages. These include subsidizing of industry, limits on access for foreign companies and alleged theft of intellectual property.

Jacob Parker, vice president of China operations at the U.S.-China Business Council in Beijing, said his group was pleased with the last-minute changes to further protect foreign firms’ commercial information.

“The addition of language imposing criminal penalties for sharing sensitive foreign company information adopts a much tougher deterrent against counterfeiting and IP theft and will offer new avenues for the enforcement of IP protection,” he said.

However, Parker added that “while the language on criminal liability is positive, it will be difficult to enforce.”

Some law experts and business consultants have expressed scepticism about how effective the law will be in protecting foreign firms from compelled technology transfers, given a lack of rule of law in China.

ADDITIONS LARGELY COSMETIC?

They maintain that the additions to the law are largely cosmetic because Chinese courts are tightly controlled by the ruling Communist Party.

“What prosecutor is going to bring a case against a Communist Party official?” one person in the U.S. business community asked.

There are also concerns that broad national security reviews could still leave foreign companies subject to overreaching regulators.

The American Chamber of Commerce in China, in a statement earlier this week, said that it in principle welcomed and appreciates “this legislative effort to improve the foreign investment climate”.

“We are concerned, however, that such an important and potentially far-reaching piece of legislation will be enacted without extensive consultation and input from industry stakeholders,” it said.

The chamber said in February that a majority of its members favored the United States retaining tariffs on Chinese goods while Washington and Beijing try to hammer out a deal to end the long trade war.

Chinese Premier Li Keqiang leaves next to NPC spokesperson Zhang Yesui at the end of a news conference following the closing session of the National People's Congress (NPC) at the Great Hall of the People in Beijing, China March 15, 2019. REUTERS/Thomas Peter

It noted then that 19 percent of its companies were adjusting supply chains or seeking to source components and assembly outside of China as a result of tariffs.

Li said he believed Beijing and Washington could resolve and control their differences.

“To want to artificially separate these two economies is unrealistic and impossible,” Li said.

Reporting by Ryan Woo and Kevin Yao; Additional reporting by Michael Martina and Ben Blanchard; Editing by Richard Borsuk

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