Top Court Lays Down Rules to Protect Foreign Investors

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The rights of foreign investors in China will be better protected with the release of a new judicial document on Friday. It instructs courts across the country to support investment contracts that do not involve the negative list contained in China's Foreign Investment Law.

In contract-related lawsuits, unless the investment sector is explicitly prohibited, courts will support foreign investors even if the other side argues that the contract wasn't approved or registered, a judicial interpretation issued by the Supreme People's Court said.

If China adjusts the negative list before a verdict is determined and allows foreign investment in a specific sector, investment contracts in that sector should also be deemed valid, the new rule said.

The judicial interpretation of the Foreign Investment Law will take effect on Jan 1, concurrent with the law. While the law was adopted by the country's top legislature in March, many argued that it was too general to be carried out in practice.

The top court said its new rule will guide the proper implementation of the Foreign Investment Law nationwide, and offers equal protection for domestic and foreign investors.

"We'll adopt a more open and inclusive attitude when dealing with such lawsuits to protect the rights of foreign investors and offer a sound legal environment for the country's further reform and opening-up," said Gao Xiaoli, deputy head of the No 4 Civil Division of the Supreme People's Court.

She said the new interpretation could been seen as "a crucial move to help the country attract more foreign investment".

The rule applies to all contracts arising from direct or indirect investment by foreign individuals, enterprises or other organizations in China, including contracts on the establishment of foreign-invested companies, new projects or the transfer of shares, property or stock rights.

However, courts will not support a contract if the investment area is on China's negative list. If it's a restricted sector, judges will have to review the detailed circumstances, the interpretation said.

"In short, we'll treat investors equally under the law, no matter where they come from," Gao said.

She said the interpretation focuses on contract validity "because about 70 percent of foreign investment disputes relate to contracts".

Luo Dongchuan, vice-president of the top court, said contracts are essential for investors and are "a primary step in international trade".

The interpretation is a signal that Chinese courts will support foreign investment contracts to the full extent the law allows, he said.

Wei Jianguo, vice-chairman of the China Center for International Economic Exchanges, said the upcoming implementation of the Foreign Investment Law is a notable step for China.

"Most foreign investment entering China will no longer need approval from local authorities," Wei said. "These new judicial rules can help fight monopolies and other forms of unfair competition in the domestic market."

Rachel Duan, president and CEO of GE Global Growth Markets, said, "We believe that an integrated Foreign Investment Law is a significant improvement and a key step forward for China as it moves toward further openness in legislation.

"In recent years, we have been pleased to see that the Chinese government has given consideration to the development needs of different market entities in China. By constantly deepening reform in free trade zones, establishing and improving the negative list, reforming and streamlining regulations on foreign investment and adopting a service-provider level of awareness, the government has given strong support to foreign companies."