China claims it’s about to create a level playing field for international companies, but many of them are still wary of expanding their presence in the world’s second largest economy.
Beijing has promised that a new foreign investment law will introduce measures to better protect overseas companies operating in China. It says the law, which was passed Friday, includes better safeguards for intellectual property and an end to the practice of forcing international firms to hand over critical technology to their Chinese partners.
China’s treatment of foreign companies has become a flashpoint in the country’s trade dispute with the United States. China’s growing economy has become a huge market for top US companies like General Motors (GM), Boeing (BA) and Apple (AAPL).
Rushed law to appease Trump?
The international business community in China sees the law as a positive step in general but it has also raised concerns about parts of it.
Foreign business groups say the legislation was rushed through with little attention paid to their views.
The American Chamber of Commerce in China, which represents about 900 US companies, said this week that the law was being pushed through without “extensive consultation and input” from foreign businesses in the country.
It was first proposed in 2015, before being shelved by China’s ruling Communist Party. It then suddenly resurfaced in December, was approved Friday near the end of the annual meeting of China’s rubber-stamp parliament, and is set to come into force at the start of 2020.
The abrupt return and rapid approval of the new rules come as China is trying to negotiate an end to its trade war with the United States. The two sides slapped tariffs on exports worth hundreds of billions of dollars last year.
Experts said the new law appears to be part of efforts by Beijing to appease US President Donald Trump, whose administration has repeatedly accused China of unfairly acquiring American technology.
“The rush to pass the foreign investment law at this stage is assuredly driven by the pressure from the US-China trade war,” said Wang Jiangyu, an associate professor of law at the National University of Singapore.
Much room for interpretation
Business groups say they fear the vagueness of the new law means it will fail to address their concerns about doing business in China.
Parts of it aren’t specific enough on issues such as intellectual property protection, despite a number of revisions to the first draft, according to Jacob Parker, vice president of the US-China Business Council.
The law is shorter than the version that was proposed four years ago and lacks some of the details it contained, said Parker, whose organization represents about 200 American businesses in China.
“The vague language leaves much room for interpretation and makes compliance difficult,” he added.
In a survey conducted in November and December for the American Chamber of Commerce in China, a third of companies who responded said they were limiting their investments in China because of concerns about intellectual property theft and forced tech transfers.
Chinese officials have rejected accusations that foreign companies are treated unfairly, arguing any tech secrets handed over were part of mutually agreed deals.
Protection of Chinese firms
Foreign companies in China also often complain that state-owned Chinese firms benefit from unfair advantages, such as government subsidies and preferential treatment.
“China’s protection of domestic industry is a long-running concern for foreign business,” said Diana Choyleva, chief economist at research firm Enodo Economics. But the new law “doesn’t tackle” that problem, she added.
The law includes provisions on national security, which some firms worry could be used as cover to shut international businesses out of certain projects or to confiscate investments altogether.
They “could easily be used as pretense to discriminate against foreign companies,” analysts at consulting firm Trivium China wrote in a commentary this week.
But some experts say these fears are overblown. Wang said that China “has never nationalized any foreign investment project” since it began opening up the Chinese economy to the world more than 40 years ago.
Steven Jiang contributed to this report.