China: New Foreign Investment Law FIL effective from 2020

Review your existing corporate legal entity in China or seize the opportunity to invest in China

The performance of a company in the China market is of such strategic importance in many industries that the success or even the very existence of the company is determined by its market position in China.

Although many companies entered the China market years ago, in many cases the achieved market position in China is still unsatisfactory. The main reasons are:

• misjudgment of the markets, customer needs and capabilities of the competition
• wrong assessment of the role of public authorities
• negotiations under wrong assumptions of Western business practices and
• unfavorable legislations for foreign investors.

New law

The new law repeals the unfavorable legislations for foreign investors: As of January 1, 2020, a fundamentally renewed law for foreign investments comes into effect in China (the so-called “Foreign Investment Law”, or FIL for short). The Foreign Investment Law (FIL) replaces the so-called “Sino-Foreign JV Laws”, which up to now holds considerable risks for international investors. Incidents and negative experiences of Western companies in China, especially in joint ventures, but also with their WFOE (Wholly Foreign-Owned Enterprise) belong to the past. With the Foreign Investment Law (FIL), China will continue to open up and become more attractive to foreign companies for market entry and sustainable investments.

Transition period

All companies in China with foreign shareholdings (so-called “Foreign Invested Enterprise”, or FIE for short) have to adapt to the new Foreign Investment Law (FIL) during a transition period of five years. In our view, this necessary adjustment is a good reason to review your existing corporate legal entity in China in a comprehensive strategic-organizational review.

Implications

For an overview of the key implications of the new Foreign Investment Law (FIL) and how foreign companies in China can benefit from them, please refer to our discussion paper “China: New Foreign Investment Law FIL effective from 2020”:

The new law aims to level the playing field for foreign enterprises and joint ventures. Excerpt from our discussion paper “China: New Foreign Investment Law FIL effective from 2020”

Upon request, we are pleased to provide our full discussion paper to company representatives free of charge. If you are interested, please contact us via our contact form or call us at + 49-89-24208659-0.

MelchersRaffel – Our expertise for your success

Make use of our experience and networks of over 150 years of successful business in China. We are gladly at your disposal and happy to provide you with our expertise and experience for questions on this topic. Together with our clients, MelchersRaffel develops profitable growth strategies and implements M&A processes and joint venture models in China and Southeast Asia. The motivated and competent team of MelchersRaffel in Munich, Shanghai and Hong Kong is looking forward to hearing from you soon.

For further information, please contact our Munich office:

• + 49-89-24208659-0
• Contact form

Source: MelchersRaffel research & analysis based on the Foreign Investment Law of the People’s Republic of China.