collega - Károli Gáspár Református Egyetem

The basic legal framework of foreign direct investment in China
supply of electricity is guaranteed
to foreign-funded enterprises.
2.4 History of the development
of FDI in China
China began administering policies
to encourage foreign businesses to
invest in 1979, the first Sino-foreign
joint venture was set up in 1980.
Since then, following the gradual
improvement of China’s investment
environment, foreign investment to
China has been increasing. The
investment boom started in 1992.
Beginning from 1993, China become
the world’s second country in receiving
foreign direct investment for
seven consecutive years, second only
to the USA. 2 By the end of the ‘90s,
China had approved about 341,800
foreign investment enterprises.
These enterprises had in their
employment a workforce of approximately
18 million persons. Foreign
investment agreed in principle
totaled USD 613.758 billion, while
actual realized investment stood at
about USD 307.848 billion. Of the 500
largest multinational corporations,
400 have invested in China. 3 The vast
majority of investments are made in
the southeastern coastal provinces. 4
The East-Asian economic crisis of the
late nineties had an impact on the
investment climate to the PRC as
well, however, after 2000 the level of
invested capital began to rise again
and the yearly GDP growth reached
an average of ten percent, that
remained unchanged until 2006.
III. Major laws and regulations
affecting FDI in china
3.1 Legislation concerning
foreign direct investments
The PRC has not promulgated a unified
foreign investment law. Instead,
a series of special laws, regulations,
and decrees for specific fields have
been promulgated which, coupled
with other laws, regulate foreign
economic relations. The PRC’s laws
on foreign investment are thus forming
a three-tier structure, comprising
of various national laws on specific
issues, relevant regulations issued by
the State Council and its ministries,
and local rules and regulations.
3.1.1 The Constitution
The PRC Constitution 5 provides the
first tier of foreign investment law.
Article 18 provides the basis for all of
PRC’s legislation relating to foreign
investment. It stipulates:
“The PRC shall permit foreign
enterprises, other foreign economic
organizations and individual foreigners
to invest in China and to
enter into various forms of economic
co-operation with Chinese enterprises
and other Chinese economic
organizations in accordance with the
law of the PRC.
All foreign enterprises, other foreign
economic organizations as well
as Chinese-foreign joint ventures
within Chinese territories shall abide
by the law of the PRC. Their lawful
rights and interests shall be protected
by the law of the PRC.”
3.1.2 National Legislation
on Specific Issues
and Relevant Regulations
This is the second tier, which consists
of two parts:
– Specific laws concerning foreign
investments promulgated by the
National People’s Congress. These
laws and regulations set out the
framework of foreign investment,
the permitted forms of investment
enterprises (for example Chineseforeign
equity joint ventures,
Chinese-foreign contractual joint
ventures, wholly foreign owned
enterprises and Chinese-foreign
joint exploitation of natural
resources projects) and the designated
areas for investment (Special
Economic Zones, Coastal Open
Economic Zones, Economic and
Technical Development Zones,
etc). The laws and regulations also
cover taxation, foreign exchange
control, industrial property rights,
etc.
– Administrative regulations and rules
issued by the State Council and its
ministries. This category includes
various rules and regulations that
implement the specific laws. In the
usual case, after a particular law is
passed by the National People’s
Congress, the State Council or its
relevant ministry will issue
detailed rules or regulations implementing
that particular law. Some
laws will have more than twenty
regulations attached to them. The
PRC Company Law is an example. 6
It should be noted that many other
fields of law are also containing regulations
affecting foreign direct
investment: civil law, civil procedure,
criminal law, labor law, real
estate law, laws on legal services and
notarization, insurance law, financial
and accounting law, environmental
law and others.
3.1.3 Regional Regulations
and Rules
This is the third tier of legislation.
The PRC’s Constitution stipulates
that the People’s Congresses of
provinces, autonomous regions,
municipalities directly under the
Central Government, and their
standing committees, may make
local supplementary regulations.
Such local regulations must be
reported to the Standing Committee
of the National People’s Congress
for record. They comprise the
detailed implementing regulations
that govern the application of the
State laws on foreign investment in
that region. Provincial-level legisla-
2 Li Mei Qin, Attracting Foreign Investment into the PRC: the Enactment of Foreign Investment Laws, Singapore Journal of International and
Comparative Law, 2000.
3 http://moftec.net/official/
4 In Guangdong (USD 97.15 billion), Shanghai (USD 28.56 billion), Jiangsu (USD 24.36 billion), Fujian (USD 22.81 billion), Shandong (USD 14.84
billion) and Hainan (USD 10.44 billion). Guanghua Yu & Minkang Gu, Laws Affecting Business Transactions in the PRC 265 (2001).
5 The Constitution of the PRC was adopted and promulgated by the National People’s Congress on December 4, 1982, last amended on March
15, 1999.
6 Company Law of the People’s Republic of China, adopted at the Fifth Session of the Standing Committee of the Eighth National People’s
Congress on December 29, 1993 and effective as of July 1, 1994. An English translation is set out in China Law & Practice, March 9, 1994.
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