Identification Of Foreign Investment

Foreign investment is a basic concept in the system of foreign investment laws. Pursuant to the Law on Chinese-Foreign Equity Joint Ventures, the Law on Foreign Capital Enterprises and the Law on Chinese-Foreign Contractual Joint Ventures(hereinafter jointly referred to as “three laws on foreign investment”) that were formulated in the early years of China’s reform and opening-up as well as other laws and regulations on foreign capital merger & acquisition and foreign investment statistics, foreign investment in China includes greenfield investment, cooperative development of resources, borrowing from abroad, foreign capital merger & acquisition, etc. At present, there are different interpretations of foreign investment in China’s legislative and juridical practice. Nationality of the investor, source of capital and place of registration are all used to define foreign investment. Due to different criteria for defining foreign investment, legal practitioners need to pay attention to the applicable scopes of different laws and regulations, and it arouses consideration in this sector about reasonable adoption of these criteria in the course of legislation and supervision. The author of this thesis studied some definitions of foreign investment in foreign laws, analyzed the main components of foreign investment including the investor, source of capital and investment behavior as well as the method of defining foreign investment in foreign laws, and conducted a comparative analysis of the criteria for defining foreign investment abroad, providing a reference for defining foreign investment in China. As the concept of “control” has a significant influence on the definition of foreign investor prescribed in the Foreign Investment law(draft), the author studied “control” in particular, illustrated the possibility of conflict about the definition of “control” in specific cases and the issue of “joint control”, and made the relevant legislative suggestions. Moreover, the author also focused on “variable interest entities”. Because there are different viewpoints on “variable interest entities” both in the theoretical and practical circles, the Foreign Investment law(draft) does not contain stipulations on “variable interest entities”. Public opinions will be solicited for discussion before any suggestion is made. After studying the definition of “variable interest entities”, its application in the practice and relevant supervision, the author suggests stronger regulation and supervision of “variable interest entities” to avoid failing functioning of current industrial policies regarding certain sectors where foreign investors are restricted or prohibited from entering so as to protect the authority of laws. At the same time, the author suggests that related authorities give more consideration on how foreign investment policies can better meet the needs for economic development and national security and adopt more flexible methods to resolve financing difficulties of certain industries.