Investing Guide: Evaluating Foreign Investment Restraints in China

As we have written previously, China is engaging in simultaneous bilateral investment treaty (BIT) negotiations with the United States and the European Union. Indications are that the Chinese government is taking these negotiations very seriously. This presents the most significant opportunity for foreign investors in China to influence market access restrictions and other restraints on foreign investment in the country since China’s accession to the World Trade Organization (WTO) in 2001.

At the request of European trade negotiators, we searched hundreds of thousands of measures issued by 39 central government agencies and five representative provincial-level governments in order to identify provisions that frame or limit market access and business activities of foreign-owned companies in China. In the process, we identified over 800 restraining provisions, which we analyzed and grouped into a number of different types and categories. The results provide a useful taxonomy for future discussion both within the BIT negotiation context and beyond.

Beyond published measures, the Covington team reviewed key trade publications and conducted interviews with industry groups to identify and catalogue administrative practices that may also have a restraining effect on foreign investment. As foreign business leaders in China are well aware, many of the biggest obstacles to foreign participation in the Chinese economy are imposed unofficially by government officials exercising legal or extralegal discretion.

A public version of the report prepared for the EU’s Directorate General for Trade is available on the EU DG Trade website. While it does not include the full database of restraining measures, the public version presents detailed descriptions of the types of restraints identified and provides supporting examples and observations.

Material for this post was supplied by Ashwin Kaja of Covington & Burling LLP.