China loosens investment rules for foreign firms

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China's National People's Congress passed a new foreign investment law.

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.

The legislation was approved just three months after a first draft was debated, an unusually quick turnaround for the legislature, which meets once a year.

China has so far promised billions of dollars in planned tax cuts and infrastructure spending, as economic momentum is expected to cool further due to softer domestic demand and a trade war with the United States.

People walk past a construction site in Beijing, China.

The trade battle has seen both sides impose tariffs on billions of dollars worth of one another's goods since past year. The tit-for-tat tariffs and rising protectionist tendencies have hurt business sentiment worldwide and stoked uncertainty.

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". Although the foreign investment management mechanism has evolved rapidly in recent years, there are still many changes to go both in legislation and in practice.' The research was produced in connection with an upcoming Linklaters report that highlights several key trends that should be viewed as guidelines for success by worldwide companies, investors and brokers seeking to complete Chinese inbound M&A deals.

"I have said many times that China's opening-up measures are often not launched as one package; they come out every year and even every quarter", Li said.

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But Western observers remain skeptical.

"The newly signed Foreign Investment Law in China dramatically increases scope for foreign investors" Chinese M&A and investment strategies.

Shares on Chinese stock exchanges climbed after the government reaffirmed its commitment to boosting growth.

In addition, the new law has also met many demands raised previously by foreign businessmen. "All laws and regulations will continue to provide the Communist Party of China (CPC) with a great deal of room for maneuver to intervene, albeit not explicitly", she underlined. Foreign investors and companies may establish and voluntarily join chambers of commerce and trade associations in accordance with the law in order to safeguard their legitimate rights and interests.

The American Chamber of Commerce in China, which represents about 900 USA companies, said this week that the law was being pushed through without "extensive consultation and input" from foreign businesses in the country. The chamber noted that the clause gives China power to take "unilateral action against trading and investment partners based on a principle of perceived negative reciprocity".

"We hope that delaying the implementation of the law to January 1, 2020 will offer additional opportunities for foreign companies to work with regulators to resolve our concerns around contracts, national security reviews, and participation in standard setting bodies".

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".