New Chinese laws aimed at foreign ‘discrimination’

Australian companies face Chinese retaliation under proposed new foreign investment laws.

 

Australian companies face Chinese retaliation under new foreign investment laws set to be passed by the National People’s Congress on Friday.

China, which will be able to retaliate against countries that discriminate against Chinese firms, such as the decision by the federal government to ban Chinese telecommunications giant Huawei from supplying equipment for the next-generation 5G networks, says the laws are aimed at encouraging more foreign investment in China by putting foreign companies on the same footing as domestic companies in many areas.

While there will still be a “negative list” of sensitive areas off limits to foreign investors, Chinese officials say the new law is designed to give foreign companies a level playing field with local companies when investing and operating in China. The new law will also explicitly ban government officials from using administrative means to force foreign companies to transfer their technology to Chinese companies.

But some foreign companies in China are concerned about a provision in the draft legislation that explicitly says China reserves the right to retaliate against countries that discriminate against Chinese investment with “corresponding measures”.

“Where any country takes discriminatory, prohibitive or other similar measures against the People’s Republic of China with respect to investment, the People’s Republic of China may take corresponding measures against such a country or region based on the actual circumstances,” it says.

Western observers told The Australian they were concerned at what this section of the new law could mean in practice.

There has also been concern among some Western companies in China at what could be implied by another provision in the new law which says “the state will establish a new security review system for foreign investment and conduct a security review of foreign investment that affects or may affect national security”.

While this section has some similarity with Australia’s foreign investment review system, which allows the federal treasurer to oppose foreign investment proposals on national interest grounds, Western observers are concerned about how this provision could be implemented in China including for foreign companies already operating in China.

If strictly implemented, it could provide significant additional scope for the Chinese government to take action against foreign companies in China that are seen as doing anything that could harm national security.

China is looking to finalise a trade deal with the US later this month, arguing it is continuing to open up the country for more foreign investment.

China’s Global Times said last week the submission of the draft law to the annual congress, which opened last Tuesday, was a “major step towards the final passage of the country’s first unified foreign investment law that would provide the legal basis for shaping China’s management of foreign investment for years to come”.

“If adopted, the new law will guarantee greater access and better protection for foreign investors as China continues to open up its vast domestic market to foreigners based on its own development needs,” it said.

It said the law covered issues including a legal definition of foreign investment, protection of foreign investors and the management of foreign investment.