THE CURRENT COMPLEX LEGAL FRAMEWORK ON FOREIGN INVESTMENT

Over the few last decades China has opened its market to foreign investment. China is nowadays the major recipient of FDI worldwide and this has entailed a steadily increase in the number of M&A of domestic Chinese firms by foreign investors. Solely foreign-owned enterprises are the most popular form of FDI in the PRC. This situation has promoted the wider use of foreign investment in the PRC and has also played a positive role in optimising the allocation of resources, fostering technical progress and improving business management levels in the country, among other benefits.

The continuous increase in the flows of foreign investment to the country has helped China to advance its technical capability and to improve the performance and size of its economy. However, at the same time, it has also fuelled national security concerns, usually linked to the potential acquisition of control by foreigners over certain key areas of the Chinese economy, and the fear of being controlled or conquered again by foreign interests, as has happened in other points in Chinese history. It is considered impossible to be fully open to FDI; at the very least, the preservation of national security must be ensured.

The PRC is now facing the difficult task of ensuring the protection of national security at the same time as creating an open atmosphere and a secure environment for foreign investment. In fact, the increasing amount and impact of Chinese outwards FDI, along with its geographic reach and the intensive search for secure natural resource supplies worldwide, contrast with the barriers Beijing has traditionally imposed on entry of FDI into its own market. This cocktail has now fostered increasing mistrust of Chinese investment in many countries around the world and has fuelled protectionism, at least as regards FDI from certain countries, especially from the PRC.

The enactment in the US of the Exon – Florio Amendment in 1988 created many concerns in relation to potential international retaliation and was deemed to generate enormous problems for the US, to damage the credibility of the country on investment issues and to have a very negative impact in the US and abroad.