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China law responds to US investment demands but critics say it's not enough

The National People's Congress said Monday that it would debate the draft law Friday and vote on it a week later at the close of the session.

[BEIJING] China is poised to approve a sweeping rewrite of the country's laws on foreign investment that it hopes will help pacify the United States and ease a rancorous trade dispute. The new rules would respond to some concerns among foreign governments and businesses but disregard many other worries.

China has been locked in a bruising struggle with the United States over the Trump administration's contentions that Beijing has repeatedly forced foreign companies to hand over technological secrets as a condition of doing business in China, and has failed to protect American companies' products from counterfeiting and other illegal copying. Beijing has denied any shortcomings in its existing practices and the new law does call for tighter enforcement.

But the new law is made up of many single-sentence pronouncements on complex issues, with no details on how those rules would be carried out.

"This is good, but it's not enough," said Carlo Diego D'Andrea, chairman of the European Chamber of Commerce in Shanghai.

There are some signs that a settlement of the trade war may be coming soon. Still, the new foreign investment law, if passed, would ban local and provincial officials from requiring that foreign companies transfer technology to Chinese companies.

The most recent published draft, issued in late December, made no mention of preventing national government regulators from demanding technology transfers.

The National People's Congress said Monday that it would debate the draft law Friday and vote on it a week later at the close of the session. Approval is essentially automatic in the 2,975-member congress, which is tightly controlled by the Communist Party, although there is some room for last-minute amendments. The congress's 11-day annual session opens Tuesday.

Zhang Yesui, spokesman for the congress, said the law would "improve the openness, transparency and predictability of the investment environment, and provide more effective legal protection for the formation of a new, open system."

Chinese experts say the legislation would be a big improvement over the current environment in which foreign investment is regulated by three separate laws.

Foreign experts are less sure. The European Chamber of Commerce in China said in a statement last week that the language used in the law was overly broad and lacking in specifics.

The 2015 draft of the same law, which the legislature never approved, had 170 articles. But the final draft released for public comment in late December had just 39 articles, a third of which are a single sentence each.

Over the last several years, as Chinese officials mused publicly about the possibility of a new law, there were some calls from foreign and domestic businesses for the laws on foreign investment to be merged with the laws for Chinese investors.

Foreign businesses contended that they should be allowed to compete based on the same rules as local businesses. Some Chinese businesses also favored merging the domestic and foreign investment laws in the hope that they would be given more protection. For example, the draft foreign investment law requires that companies be fairly compensated if their assets are seized by the state - a rule that might benefit Chinese companies if they were in a similar situation.

The European Chamber criticized the government for retaining separate rules for foreign investors. And Ker Gibbs, president of the American Chamber of Commerce in Shanghai, said that "foreign businesses should receive equal treatment and only be restricted from investing in areas that truly impact national security interests."

Western business groups are also particularly concerned that the law would require foreign companies to share detailed information about their operations under a new reporting system. That system would be used to keep score of how well foreign companies' subsidiaries comply with local and national regulations, including areas like pollution, head count and labor disputes.

Business groups wanted the law to include a ban on the sharing of information from the reporting system with Chinese competitors. But the most recently released draft does not include such a provision.

The draft law would establish a complaints procedure for foreign companies. But it indicates that such cases may be heard in Chinese courts, which are under the tight control of the Communist Party. Many judges in China have limited legal training and are chosen for political loyalty.

James Zimmerman, a partner in the Beijing office of Perkins Coie law firm, said that if the final version of the legislation next week calls for cases to be heard in Chinese courts, practically no Western businesses will want to use the process.


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