Chinese Legal Reform: The Case of Foreign Investment Law

By Yan Wang | Go to book overview

7

The legal protection of foreign investors' management autonomy

Background

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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Chinese Legal Reform: The Case of Foreign Investment Law
Table of contents

Table of contents

  • Title Page iii
  • Contents vii
  • Foreword ix
  • Series Editor's Preface xi
  • Acknowledgements xiii
  • Abbreviations xv
  • Introduction 1
  • 1 - The Main Features of China's New Legal System 9
  • 2 - The Politico-Economic Dilemma of China's Foreign Investment Law 35
  • 3 - The International Background to China's Foreign Investment Law 47
  • 4 - Objectives and Framework of Foreign Investment Law 58
  • 5 - Legal Controls on Foreign Direct Investment 70
  • 6 - Legal Incentives to Foreign Direct Investment 123
  • 7 - The Legal Protection of Foreign Investors' Management Autonomy 134
  • 8 - The Protection of Foreign Investors' Contract Rights 156
  • 9 - Conclusion 176
  • Appendix 1 185
  • Appendix 2 188
  • Notes 194
  • Select Bibliography 242
  • Index 252
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