Chinese Legal Reform: The Case of Foreign Investment Law

By Yan Wang | Go to book overview
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There is no doubt that China has made tremendous achievements in its legal development in light of the pre-reform situation. At the same time, there exist theoretical and institutional limitations to China's legal reform, which are reflected in various problems encountered by foreign investors.

China's law can be better understood by taking into consideration various factors that have in one way or another underlined and shaped the contents of law and its function. Failure to consider these factors may lead to an unrealistic hope that the mere adoption of legal concepts can solve the problems encountered by foreign investors. In fact, as demonstrated in this book, the features and functions of newly established laws are bound to be characterized and conditioned by the existing social system.

China's law has been developing in a period of radical transition. The ongoing economic reform, the evolving ideology and shifts of policies have been reflected in the development of the Chinese legal system. Such reflection is also exemplified in China's foreign investment law which has been developing and evolving in the context of the debate as to the pace of the economic reform and the role foreign investment will play. The debate, no doubt, had an effect in the formulation of legal attitudes to foreign investment, which in turn fashioned legal techniques that were used to regulate foreign investment.

Debate as to how best to use and regulate foreign investment has been going on since the open door policy. The debate leads to an unresolved politico-economic dilemma towards using foreign investment - the need for foreign capital and technology and the concerns about its negative effects. Such a dilemma results in the dual objectives of foreign investment law. The law thus has an ambiguous nature and plays an ambiguous role in balancing control of foreign investment against facilitating the activities of foreign-invested enterprises. While establishing a set of control mechanisms to regulate foreign investment, China has also established a comprehensive range of incentive policies and a legal structure to protect such rights as management autonomy and contractual rights in order to attract foreign direct investment.

Legal measures to control foreign investment have been adopted by many countries, even by developed countries. In this politically and ideologically


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