International Finance News
Morrison & Foerster partner Paul D. McKenzie shared his thoughts on the impact of the new PRC Foreign Investment Law (FIL) in the International Finance News article, “The Most Concerned Topics by Foreign Companies During the Two Sessions This Year.”
According to Paul, “By enacting the FIL, China substantially rewrote the rules of the road for foreign investors, opening a new era for foreign investment in China. In 2020, the benefits of this change already started to be demonstrated.”
“Perhaps the most fundamental change associated with implementation of the FIL was the scrapping of the legislative framework first established in the 1980s governing Sino-foreign joint ventures. The assumption of those old rules was that the rights of Chinese investors had to be protected, and mandatory provisions were imposed concerning governance, capitalization, profit distributions, and a host of other issues. Investors had to operate in a legislative straightjacket.
“With the FIL, the straightjacket fell away and foreign companies can co-invest with Chinese counterparts in businesses in China using the same governance and other structures available to domestic companies — and largely following models investors will be familiar with when making investments outside China.
“In 2020, we saw the first generation of ‘new’ JVs, which leveraged the more permissive regulatory framework introduced by the FIL. This year, 2021 will see more, particularly in the tech space, where JVs have seen a renaissance,” commented Paul.