A Study Of Evasion Of Law In China's International Investment Area

Since late 1970s when China adopted the policy to open the international investment area to investors, foreign direct investment in China appears a trend of continuous increase and China has become an important capital-importing country. Based on the statistics data, in 2003, China became the largest foreign direct investment importing country. The PRC international investment related legal regime, with the development of the practice in the international investment area, has also developed a lot since late 1970s. During over two decades'practice, it was observed that both foreign investors and domestic investors had, in many cases, circumvented the legal restrictions by taking advantage of the loophole of the law. "Evasion of Law"is a concept originating from international private law, of which there exist various point of views regarding its definition and nature based on the theory of international private law or based on the theories of domestic law. In international investment area, there exist activities which may be deemed as Evasion of Law either under international private law or under domestic law. Specifically speaking, in the practice in China, various law evasion activities exist in the investment-related areas such as investment approval, operation and management, distribution of profit, payment of taxes, etc. Evasion of Law is a product of various factors. From an economic perspective, seeking maximum interests as a law economical man and the rule of non-walrasian equilibrium are the two important causes for Evasion of Law. From a legal perspective, the defects of law and the characteristics of the PRC law also result in Evasion of Law. In addition, the way of enforcement of law and the impact of culture also, to some extent, facilitate Evasion of Law. Evasion of Law leads to both positive and negative implications on China's international investment area. The negative implications include: impairing the authority and unification of law; impeding the regulation of macro-economy and implementation of industry policy; suffering the state or the counterpart for loss of expectable benefits; subjecting the evading party to certain legal risks; leading to the uncertainty of investment interests for investors, making the development of the invested projects unexpected and impacting future investment in a negative way. Positive implications include: to some extent, reflection of the shortage and defects of law so as to have law improved; to some extent, creating new system and initiating new policy; reparation of the shortage of law; causing the optimization of supervision. The attitude and countermeasures to Evasion of Law should be based on the analysis of the reasons for such evasion. On one hand, the PRC international investment legal regime should be improved in various aspects. On the other hand, officials who enforce law should update their minds on foreign investment. Meanwhile, a coordination and cooperation system should be established among various authorities so that the occurrence of Evasion of Law could be minimized and the development of China's international investment area could speed up.