1. New Trends and Challenges for Foreign Investment into China
XINGHUI (RYAN) JIN (PARTNER)
September 20, 2019

2. 01 02 03 04 New “Foreign Investment Law” to be implemented
Revision to the Negative List and the Guidance Catalogue How to Deal with Such Changes by Foreign-Invested Enterprise Q&A 03 04

3. Foreign Investment Law01
J U N H E
L L P

4. 1. Foreign Development Law
Confidential and for discussion purposes only
1.1 The new Foreign Investment Law will take effect on January 1, 2020
 What is “foreign investment”?
The investing activities within China directly or indirectly conducted by foreign natural persons, enterprises, and other, including the following circumstances:
A foreign investor forms a foreign-funded enterprise within China alone or jointly with any other investor; [Foreign direct investment]
A foreign investor acquires any shares, equities, portion of property, or other similar interest in an enterprise within China; [M&A by Foreign Investors]
A foreign investor invests in any new construction project within China alone or jointly with any other investor; [Contractual Arrangement Based Investment]
Investment in any other manner as specified by a law or administrative regulation or the State Council. [VIE investment?]

5. 1. Foreign Investment Law
Confidential and for discussion purposes only
1.2 Administrative system ： Pre-entry national treatment plus negative list
A. Pre-Entry National Treatment
 "the treatment accorded to foreign investors and their investments no less favorable to that accorded to domestic investors and their investments at the stage of investment access ”, “The state accords national treatment to foreign investment outside of the negative list.”
 “The state establishes a foreign investment information reporting system. A foreign investor or foreign-funded enterprise shall submit investment information to the commerce department through the enterprise registration system and the enterprise credit information publicity system. The contents and scope of reporting of foreign investment information shall be determined under the principle of necessity; and investment information accessible by interdepartmental information sharing shall not be required to be submitted again.”
B. The effect of pre-entry national treatment on the procedure of foreign investment establishment and alteration
 Does foreign investment outside of the negative list still need to be recorded by the Commercial Committee?
 Coordination with M&A rules (assessment right, price adjustment mechanism, asset realization)
 "De-facto” control issue

6. 1. Foreign Investment Law
Confidential and for discussion purposes only
1.3 Investor Protection
A. Intellectual Property Rights And No Mandatory Transfer
 “The state encourages technology cooperation on the basis of free will and business rules in the process of foreign investment. Technology cooperation conditions shall be determined under the principle of fairness by all investing parties through equal consultation. No administrative agency or its employee may force the transfer of any technology by administrative means.”
 Cross-border Data Transfer
B. Foreign Exchange Remit in- and out-of China
C. Expropriation on the foreign investment without fair and reasonable compensation is NOT allowed.

7. 1. Foreign Investment Law
Confidential and for discussion purposes only
1.4 Change In Corporate Governance
• After the abolition of the three specific laws on foreign investment, foreign-invested enterprises will apply the provisions of the general Company Law.
CONTENT
EQUITY JOINT VENTURE LAW
Board of Directors
Contractual Joint Venture Law
Company Law
shareholders' meeting
Board of Directors or joint management committee
Highest Authority
Minimum Quorum
At least 3 directors or joint management committee members
At least 3 directors
1 executive director or 3-13 directors
Voting Ratios
The 3 laws on foreign investment means the Law of the People's Republic of China on Chinese-foreign Equity Joint Ventures, the Law of the People's Republic of China on Wholly Foreign-Owned Enterprises, and the Law of the People's Republic of China on Chinese-foreign Cooperative Joint Ventures.
2/3 of all directors
2/3 of all directors or joint management committee members
N/A
Term of office of the directors
4 years
No longer than 3 years
No longer than 3 years
Voting Mechanism
Unanimously passed by attending directors or joint management committee members
Passed by shareholders representing more than 2/3 of the voting rights
Unanimously passed by attending directors
Distributed by the percentages of the capital that actually contributed except as otherwise agreed by all shareholders
In accordance with the contract of the cooperative enterprise
Profit Distribution
By the proportion of registered capital
Agreed by more than half of other shareholders, except as otherwise agreed among the shareholders
Transfer of Stock Right
Unanimously agreed by all other partners
Unanimously agreed by all other shareholders
• 5 years Transition period

8. 1. Foreign Investment Law
Confidential and for discussion purposes only
1. Foreign Investment Law
1.5 National Security Review
A. National Security Law
B. Foreign Investment Law
C. Unreliable Entity List

9. 02 Revisions to the Negative List and Foreign Investment Catalogue
J U N H E
L L P

10. 2. Revisions to the Negative List and Guidance Catalogue
Confidential and for discussion purposes only
2.1 Key points of the revisions to the Negative list
Latest Negative List
Three Different Types of Negative List
Name
Issuing authority
Date issued
effective date
Market Access Negative List
National Development and Reform Commission, Ministry of Commerce
Foreign Investment
National Negative
List
National Development and Reform Commission, Ministry of Commerce
Negative list in
Pilot Free Trade Zones
National Development and Reform Commission, Ministry of Commerce

11. 2. Revisions to the Negative List and Guidance Catalogue
Confidential and for discussion purposes only
2. Revisions to the Negative List and Guidance Catalogue
2.1 Key points of the revisions to the Negative list
A. Downsizing the items
With the introduction of the 2019 negative list, the national negative access list of foreign investment has been reduced from 48 to 40, the reduction ratio is 16.7%; negative access list of foreign investment in free trade zones has been reduced from 45 to 37, the reduction ratio 17.8%.
B. Open the door gradually
From the transitional treatment, citing of the relevant industry categories of the "Guidance catalogue for Foreign Investment Industries" that were valid at that time in 2016, to 2017, adjusting the structure, separately introducing negative access list of foreign investment, and to 2018, formulating open route schedule based on the classification of national economic industry in the negative list, we can see that the National Development and Reform Commission and the Ministry of Commerce are taking actions step by step to jointly promote a unified negative list of industry access to the national level.

12. 2. Revisions to the Negative List and Foreign-Investment Catalogue
Confidential and for discussion purposes only
2.3 Key points of the revisions to foreign-investment encouragement catalogue
Main Points
• Catalogue of Industries for Encouraging Foreign Investment (2019)
• More than 80% of new or modified items belong to the manufacturing sector
• In the electronic information industry, new 5G core components, etcher for integrated circuit, chip sealing equipment, cloud computing equipment and other items have been added.
Including: Catalogue of Industries for Encouraging Foreign Investment Nationwide(“National catalogue”) which is applicable to the whole country, is a foreign investment industry promotion policy; and the Catalogue of Priority Industries for Foreign Investment in Central and Western China(“Central and Western catalogue”) which is mainly applicable to the central and western regions, the northeast region, is a foreign investment regional promotion policy.
(take effect as of July 30, 2019.) •
In the equipment manufacturing industry, industrial robots, new energy vehicles, and key parts for smart cars and other items have been added or modified.
• In the modern pharmaceutical industry, new key ingredients for cell therapy drugs, large-scale cell culture products, and other items have been added.
• In the new materials industry, aerospace materials, silicon single crystal , large silicon wafers and other items have been added.
• Catalogue for Industry Restructuring Guidance (2011)
• Foreign investment in innovative services is encouraged.

13. How to deal with such changes?03
J U N H E
L L P

14. 3. How to deal with such changes?
Confidential and for discussion purposes only
A. Confront this double-edged sword with a cautiously optimistic attitude
B. Optimistic View: Actively take advantage of the new possibilities offered by the new system
C. Cautious View: the implement of some principled commitments

15. Q&A 04
J U N H E
L L P

16. THANK YOU
Confidential and for discussion purposes only