The State Council of China released the “Regulations of the State Council on Foreign Investments” on June 1, effective July 1. The provisions apply to enterprises within China, other organizations, and individual residents. The regulations clearly state that the state supports investors in carrying out foreign investments based on market-oriented principles. Investors enjoy autonomy in decision-making, bear risks independently, and have the autonomy of foreign investment with profits and losses borne by themselves; at the same time, it is clearly stipulated that investors may not endanger national security, damage national interests, or harm social and public interests.
Main Obligations and Prohibited Conduct of Investors
Article 5 of the regulations confirms that when carrying out foreign investment, investors should respect local customs and cultural traditions, comply with business ethics, fulfill social responsibilities, and must not interfere with market competition order, damage the ecological environment, or harm the lawful rights and interests of workers.
Article 13 of the regulations explicitly provides that investors may not export or use goods, technologies, services, and related data that China prohibits from export. Nor may they transfer regulated items to other countries or regions by dispatching technical personnel, organizing personnel to work abroad, or providing technical guidance, among other means.
Violations and Penalties: Confirmed Specific Fine Standards
Article 27 of the regulations sets out the following penalty standards: for those who engage in prohibited investment categories who refuse to stop, a fine of 5‰ to 10‰ of the investment amount will be imposed, and the directly responsible personnel will be fined 50,000 to 100,000 yuan; for those who fail to complete approval or filing procedures or submit false materials, the first violation will be fined 1‰ to 5‰ of the investment amount, and if they refuse to make corrections, this will be escalated to 5‰ to 10‰, with the directly responsible personnel fined 20,000 to 50,000 yuan; for those who obtain approval or filing by bribery or deception, the approval documents will be revoked and illegal gains confiscated, with a fine of 1‰ to 5‰, and for already-investing parties this will be escalated to 5‰ to 10‰.
After the above penalties take effect, the relevant authorities may, within 3 years, refuse to accept new applications from the violators, or prohibit them from engaging in foreign investment activities for 1 to 3 years.
Anti-Discrimination and Anti-Sanctions Provisions
Articles 24 to 25 of the regulations confirm that if any country, international organization, or foreign entity violates international law and takes discriminatory measures against the People’s Republic of China, or unreasonably deprives Chinese investors of their lawful rights and interests, China’s competent authorities may take corresponding measures, including: prohibiting or restricting the relevant entity from conducting import and export activities with China, investing within China, and trading and cooperating with entities within China; as well as prohibiting or restricting the entry of relevant personnel, or canceling their work or residence qualifications within China. The relevant authorities may, in accordance with the “Anti-Foreign Sanctions Law of the People’s Republic of China,” include relevant organizations and individuals in the anti-sanctions list.
Common Questions
What is the scope of application of the “Regulations on Foreign Investment”?
Article 2 of the regulations confirms that the applicable subjects are enterprises within China, other organizations, and individual residents. It covers all Chinese entities engaged in foreign investment activities, and individual residents are also included in the scope.
Are investments in Hong Kong, Macao, and Taiwan covered by the regulations?
Article 32 of the regulations confirms that the management of investments by investors in the Hong Kong Special Administrative Region, the Macao Special Administrative Region, and the Taiwan region shall be carried out with reference to these regulations; if there are other provisions in laws, administrative regulations, or those issued separately by the State Council, follow those provisions.
What are the specific requirements for the overseas investment security review?
Article 15 of the regulations confirms that the state establishes a security review system for overseas investments. Relevant organizations and individuals must assist and cooperate, and may not refuse or obstruct. Those who violate the security review provisions or provide false materials will be ordered to make corrections by the relevant authorities, their illegal gains will be confiscated, and fines will be imposed. Those who endanger national security may be prohibited from engaging in foreign investment activities for 1 to 3 years.
