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On Friday, 15 March 2019, at the Thirteenth National People’s Congress ("NPC") of the People's Republic of China ("PRC"), the PRC Foreign Investment Law (中华人民共和国外商投资法, "Foreign Investment Law") was passed by the NPC. The Foreign Investment Law will come into effect from 1 January 2020.
The newly-passed Foreign Investment Law will replace the existing three laws for foreign-invested enterprises in China, namely the Law on Sino-foreign Equity Joint Ventures, the Law on Wholly Foreign-owned Enterprise and the Law on Sino-foreign Contractual Joint Ventures.
The Foreign Investment Law is to regulate investment activities directly or indirectly conducted by foreign individuals, enterprises and other organizations in the territory of China, adopting a regulatory regime of national treatment plus negative list. It aims to create a "more level playing field" for foreign investment in China and has provided various measures to ease anxiety and reboot the confidence of foreign investors, while further containing a separate chapter on the protection of foreign investment.
Foreign investors and foreign-invested enterprises in China should understand what the new regime is and what issues are yet to be resolved, so that they may know what opportunities and challenges they face with this new foreign investment umbrella legislation in China.
The PRC State Administration of Foreign Exchange ("SAFE") amended its Regulation on the Centralized Operation and Management of Foreign Exchange Funds of Multinational Companies (《跨国公司外汇资金集中运营管理规定》, "Huifa (2015) No. 36") and issued a new Regulation on the Centralized Operation and Management of Cross-Border Funds of Multinational Companies (《跨国公司跨境资金集中运营管理规定》, "Huifa (2019) No.7" or the "Regulation") on 15 March 2019. The new Regulation is a landmark step towards a unified cross-border fund pool regime for multinational companies ("MNCs"). Before the new Regulation, MNCs had to set up an RMB fund pool under the supervision of People’s Bank of China and a foreign exchange fund pool under the supervision of SAFE separately. However, the new Regulation allows MNCs to set up a cross-border fund pool for inflow and outflow of RMB and foreign currency funds. Meanwhile, the new Regulation implements one-off registration of foreign debts and loans extended offshore whereby a leading domestic company can borrow loans into and extend funds out of the fund pool within the registered quotas without the need to conduct registrations for each foreign debt or extended outbound loan.
Please note that whilst the information in this Update is correct to the best of our knowledge and belief at the time of writing, it is only
intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice.
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