Chinese Legal Reform: The Case of Foreign Investment Law

By Yan Wang | Go to book overview
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The legal protection of foreign investors' management autonomy


When China decided to introduce foreign investment, there were no marketoriented laws such as a law on private property and corporation law. Foreign investors could not be persuaded to invest in such a system unless their properties were assured of protection, management autonomy was provided and profits could be repatriated. Hence, a legal structure for protecting such rights had to be created to provide foreign investors with a degree of security and confidence to promote foreign investment in China. Such a legal structure was created by legislation - the enactment of the joint venture law, which was China's first foreign investment law. Similar regulations were also provided later in the Law on Wholly Foreign-Owned Enterprises and other government statutes. However, such laws cannot work in isolation from the socialist economic and legal system within which they function. The new laws inject a dualism into the socialist system creating capitalist economic arrangements in a centrally planned economy. The conflicts inherent in such a situation are many.

This chapter will concentrate on the regulations that are designed to provide foreign investors with autonomy of management in a planned economy. Following this will be the discussion of implementing the law. The experiences of various foreign-invested enterprises who have encountered different problems in practice will be revealed. The aim is to find out how these regulations function in reality and what are the factors that affect this function.

China has been attracting foreign capital through a variety of forms such as equity joint ventures, contractual joint ventures and wholly foreign-owned ventures (see Appendix 1). However, equity joint ventures have been the government's preferred mechanism for introducing foreign investment into China, especially during the 1980s. The various forms of investment are subject to political, economic, bureaucratic and legal environments very similar to equity joint ventures. Some problems are commonly encountered by foreign investors. Thus, much of the analysis here will focus on equity joint ventures and can, with some variations, be generalized to the other forms of foreign investment in China.


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