collega - Károli Gáspár Református Egyetem

Somogyi Árpád
The basic legal framework
of foreign direct investment in China
The legal system in China is “under
construction” for already a century.
Historically it is to be traced back to
many different roots. One of them is
the ancient Confucian philosophy
preferring the government of people
with the example of personal eminence
to legal rules. Another sources
are the traditional law and the
remains of the during the 1950s
imported laws of the former Soviet
Union. A fourth source is the legal
system created after the Cultural
Revolution (partially on the basis of
the former Guomindang law). This
system is subject to continuous
reforms since 1978, one of its important
steps being the enactment of the
new Constitution in 1982. Presently,
China is developing a modern legal
system based on the European continental
(civil law) legal tradition,
which formerly has already served
as an example for it.
I. Introduction
Lawyers of the Western hemisphere
often have little knowledge of
China’s legal system. This situation
is less than satisfactory, not only
because of the rich cultural heritage
of China and the fact that one-fifth of
the Earth’s inhabitants live in that
country, but also because China is
the most quickly developing country
and the most charming site for
investment already for more than a
decade.
The aim of this study is to
describe the core of the Chinese foreign
investment law, that is, the law
on the forms of establishing a business
enterprise available for foreign
investors.
II. General environment
of FDI in china
2.1 Political situation
China is in the period of substantive
changes. Its present political and
economical system is called “socialist
market economy”, a mixture of a
communist one-party system and a
more and more liberal economy.
China is one of the world’s leading
nations in importing foreign investment
capital, showing an exceptional
10 percent growth of GDP in the
last 20 years’ average. 1
The government system of the
PRC is a parallel structure of the
state and local administration on the
one hand, and the local Communist
Party organization on the another.
The main principle of government is
the so-called “democratic centralism”,
meaning that decisions are
made on the upper levels and executed
by the subordinated authorities.
On the other hand, the
provinces have substantial legislative
rights and autonomy in economic
questions, and their share in the
public incomes is constantly on the
growth.
The Chinese military is and
important actor of the Chinese political
system, having many privileges
and a broad and diverse network of
own institutions and economic activities,
being the biggest holding company
in China.
The highest state organ is the
National People’s Congress (NPC),
the Parliament of China. The NPC
elects the state president. The Chinese
government is called State Council.
On the regional level, the PRC
consists of 22 Provinces, five autonomous
regions and four cities directly
under the authority of the central
government. Hong Kong and Macao
are treated as special administrative
zones. For investment purposes,
there are various privileged areas
and zones, including Special Economic
Zones and Coastal Economic
Zones. The local governments also
have important decision-making
functions in economic questions.
2.2 Legal system
2.3 Economic reasons
for investing in China
– A huge market. With a population of
1.2 billion, China has an enormous
consumption potential. Over the
past twenty years, China’s economy
has been growing steadily, people’s
purchasing power has been
increasing and the domestic market
has been becoming increasingly
brisk. Foreign investors can
explore this market by founding
enterprises in China.
– Numerous opportunities. Because of
the rapid economic growth, a high
number of construction and development
projects have been started
throughout China. China’s economic
growth has created a host of
investment opportunities in various
sectors.
– Low cost of labor. China has a huge
population, abundant labor
resources and a relatively low level
of wages. Meanwhile, the education
level of the workers is generally
higher than in other countries
with a comparable level of wages.
– Tax incentives. To attract foreign
companies to invest in China, the
Chinese Government has formulated
many preferential policies in
terms of taxation. However, this
preferential treatment of foreign
investors is expected to be gradually
lifted due to China’s WTO accession.
– Improving infrastructure. China’s
railway, highway, civil aviation
and telecommunications sectors
have been growing rapidly, and its
urban and rural transport conditions
have become more convenient.
Coastal areas have built or
expanded a large numbers of ports
and offer good conditions for
transportation. Telecommunications
technology has been developing
quickly in the recent years. The
1 Handbuch Wirtschaft und Recht in Asien (Jan D. Bayer etc., 1999) at 1.
322 XI. évfolyam 2–3. szám