China’s Foreign Investment Law: reform to rebrand foreign
trade and investment
Annemiek Steur
(s1650009)
MA Thesis (Asianstudies)
Thesis supervisor: Dr. R. J. E. H. Creemers
Words: 14.012
Introduction
On January 1st 2020 China will enact a new Foreign Investment Law. Even before its
enactment, this law is already a hot topic of debate: it is the first time in 40 years since the Foreign Investment Laws were fundamentally updated, it is an attempt to ease trade and diplomatic relations with the U.S. and it is supposed to ease market access and improve the business environment, the latter elements being a source of friction between China and other countries.
Because China’s previous economic and foreign investment policies have allowed it to become a major player in global trade, this change in legislature can be seen as both a natural extension of its current policies to adjust to its changing domestic economy as well as a pivoting point in its competition for dominance in the global trade market. While this law has not been enacted yet, it is interesting to put it in context of everchanging legislature in China and its process of “opening up”. That was one of the slogans of the great reforms in 1978, but appears to still be a major theme today. Foreign investment is a matter of relations of China with other countries, and the most recent and compelling tensions involve China-U.S. trade relations. This law therefore has the potential to reshape relations between two major powers. China changing its foreign policy undoubtedly has effects on global trade, and while it is difficult to measure its real effects, global actors are already responding. This thesis will look into the relation between China and the U.S. in particular.
The central friction between China and the U.S. has not changed since President Trump took office in 2016, but the issues between China and the U.S. have taken on new forms with the imposed tariffs that marked the beginning of a trade dispute in 2018. Other issues that the U.S. has with China are the licensing process, as a business start-up has to be approved by the government and businesses have to give a lot of information, which is feared to increase Chinese competition and China’s “negative investment list”, which describes some industries that are not open for investment, and forced technology transfer. In addition, the U.S. has accused China before of undervaluing the RMB (the Chinese currency) and has complained about an uneven trade surplus for China, while the U.S. is left with a trade deficit.1 On the other hand, there are differences since President Trump took office in the
White House. A very straightforward difference is that President Trump uses twitter to announce and change his mind on policies towards China in terms of trade, making
China-U.S. relations unstable. Also, placing tariffs on Chinese goods is a measure not easily resorted to by previous presidents of the U.S. Still, this measure is an extension of the already present displeasure of the trade deficit between the U.S. and China.2 For the sake of the scope
and conciseness, this thesis will limit itself to the period of the Trump administration (from 2016 onward).
Usually, analyses are made of how economics, or rather economic development, influences International Relations, but in this thesis, since the mutual influence of IR and economics is considered self-evident and the law is meant to send a message to the
international community, I will look at the language aspect of law, how the newly adopted Foreign Investment Law is interpreted in China and the U.S. and how it translates itself to China-U.S. relations. This thesis therefore will try to answer the following question: What does China try to communicate with the new Foreign Investment Law and how is it received in the United States?
1 Zheng, "High Stakes: US-China Trade Disputes under the World Trade Organization (WTO)," Asian Journal of Social Science 41, no. 3 (2013): 373.
In the attempt to answer this question I will discuss the new Foreign Investment Law, compare it with the three existing ones, look at statements and speeches from the U.S. government on China’s new Foreign Investment Law, comments on the draft and final versions and other files that are representative of the situation and view of the U.S. government on China’s Foreign Investment Law. This will be put under the framework of expressive and communicative functions of law, as it helps us understand why a law and this specific law has relevance: it does not exist on its own, but tells a story of what China hopes to achieve with the alteration and how a global actor like the U.S. reacts. In addition, Beijing and Washington consensus will be briefly discussed, as to give some background to help understand from which the root of differences and similarities in statements from China and the U.S. about each other originates in an economic sense, since they are commenting on foreign investment.
Literature review
Functions of law
The newly adopted Foreign Investment Law is an excellent example of the scope of the expressive function of law. Sunstein describes this expressive function as legal statements that are designed to change social norms3. This normative function of law therefore is closely
related to the expressive function: by adopting a certain law, it expresses the creation of a new norm, e.g. how to treat foreign investors. Since one of the reasons for the adoption of the Chinese new Foreign Investment Law is to attempt to ease trade and diplomatic relations with the U.S., the expressive function of law can be reviewed both domestically and
internationally. For example, in China domestically, it can inspire a new norm of treating domestic and foreign investors equally and internationally, it can give the impression of bringing about such a change of norms. This statement is not intended as speculation on China’s (un)willingness to actually change, but rather to provide a piece in the framework of this thesis, as I seek to examine interpretations and this is one of the possibilities. It does not matter whether China actually enforces this law, if the U.S. interprets it as reality, much like the accusation of China undervaluing its national currency, (mis)interpretations of reality will have effect on China-U.S. relations. In between China’s message and intention and the interpretation of the U.S. of course lies the real truth.
Communicative function of law
Burg describes the communicative function of law as communicating normative standards to citizens, though I would argue this can be expanded to legal persons and companies and the like as well, and divides this into three forms: from the legislator to the citizens, among citizens themselves and from citizens to legislature.4 This communicative function serves the
expressive function, it relates to the actors and the way of the expression of law. In this thesis, the actors are somewhat different from the three divisions that Burg makes. It is true, that China’s new Foreign Investment Law is a communication between China and its citizens (legislator to the citizens), but it is also communication between legislator and a foreign entity, be it a foreign state or foreign investors.
When the same “language” is spoken, but differently interpreted, problems arise. One of the problems of the relatively new legal system in China is that when it comes to foreign investment, China is using the same legal terms as global actors, but the meaning is not 3 Sunstein, “On the Expressive Function of Law," University of Pennsylvania of Law Review 144, no. 5 (1996), 2022.
4 Burg, van Der, Wibren, "The Expressive and Communicative Functions of Law, Especially with Regard to Moral Issues," Law and
always analogous. Potter suggests improvements on this such as instead of mimicing Western legal jargon, China must fully integrate its foreign economic laws into their domestic legal regime. Potter continues to say that China has to provide real meaning to the protections that it promises, not just in words, but demonstrate to the international investment community by way of action5. This suggestion was made in the ‘90s, and the legalization of victims of IP
theft sueing for damages and the installation of a complaint system for foreign investors discussed later in this thesis seem to be two examples of China backing its promises with action. The legal revisions that led up to China’s WTO accession in 2001 demonstrates the integration of China’s foreign economic laws into the domestic legal regime, but the newly adopted Foreign Investment Law proves that that process is still continuing. This also relates to the relevance of backing “communication” with action, because this will determine the worth of words and gives an indication of the trustworthiness of the speaker. Not backing up statements or promises with actions will also inevitably cause the parties involved to react, most likely in a negative way.
Normative function of law
By communicating and expressing law, legal statements that are designed to change norms, law has a normative function. By legal statements, norms are theoretically consolidated, and practically this is dependent on the interpretation and implementation of law, by judges and citizens. Apart from the textbook definition of the normative function of law, the way China goes about practicing and viewing law must be reviewed, as these are not interchangable. In China judicial interpretation is not the same as legislative interpretation and is subjected to the law, also when laws are adopted subsequently.6 This, however, is the official hierarchy of
interpretation of law, but reality creates a different pattern. When China implemented the 1978 reforms, a completely new legal system was adopted. One of the accompanied challenges was that there were no adequately qualified legal professionals. As a consequence, detailed
interpretations of law-making bodies have not been possible and created a shared interpretative power7 between lawmakers and courts. In effect, the Supreme Court does
interpret laws where there is a demand for it and lower courts will follow its guidelines, but it can revoke earlier interpretations if the law changes and remains subjugated to lawmakers.
In light of the new Foreign Investment Law, it is intended to reshape norms of foreign investment, addressing U.S. complaints about unfair treatment between foreign and domestic investors, calling for national treatment. This means granting the same rights, benefits or priviliges of its own citizens to foreign citizens while they are conducting business in said country. This only applies to a product once it has entered the market, so charging taxes is not a violation of national treatment. This is an especially interesting component of what is included in and excluded from national treatment violations in relation to the U.S.-China trade war, where tariffs are the most noteable measures against the two parties, as in a way it discriminates between countries and products.
Beijing and Washington Consensus
I would like to highlight one of the debates that contrasts China to the U.S. theoretically. Apart from the economic and diplomatic clash between China and the U.S., both actors have 5 Potter, “China’s Equity Joint Venture Law: a standing invitation to the West for foreign investment?,” Journal of International Business Law 14, no. 1 (1993): 35.
6 Wang, Guiguo, Mo, John S., Chinese Law (The Hague: Kluwer Law International, 1999), 21. 7 Wang, Chinese Law, 19.
clashed before on other levels. China and the U.S. clash on ideological level as well. Most people have probably heard of ‘Washington consensus’: a liberal market mechanism model. A counterpart has risen: one now also speaks of ‘Beijing consensus’: a development model that depends on market-oriented reform. This can be addressed based on the stark difference between China and the U.S. on many levels, but most importantly, despite its first impression of economic models, the debate between Beijing consensus and Washington consensus has traveled beyond the realm of economics and, amongst other ideas, has legal signifcance and global implications8. Since the new Foreign Investment Law also has that significance and
those implications, this debate is very fitting as a piece in this thesis’ discussion of what that law says about the economic and diplomatic relationship between China and the U.S. on a global level.
Along with the strategy of “opening up” starting from 1978 came the first law that dealt with foreign investors. The Law on Equity Joint Ventures (1979) was the first of the programs that welcomed foreign investors, but the PRC remained a socialist country with a centralized economy as its main feature9. Even though this was introduced just after China’s opening up,
it is a relevant question still: how complementary are this way of running a country and welcoming foreign investors in an open market? That remains a question to be unanswered in this thesis, but I found it worth contemplating for further research concerning the
development of law around foreign investment in China.
Nevertheless, it can be addressed to some degree, making it not completely redundant for this thesis, because implementing “Beijing consensus” by reforming the market (see the adoption of the aforementioned EJV law) to open up to foreign investment has proved to have been very beneficial to China. It played a big part in spurring national development, in economic sense and increase in wealth and productivity that came along with more advanced technology that foreign investors introduced. This market-oriented reform approach that has become a fundamental element in Chinese governing of foreign investment, has proven to have been succesful in unlocking the powerful potential of China’s market, altogether quite similar to the American founding father’s vision of unlocking the potential of the market for national development10.
There are, however, many distinct features of Beijing consensus that differ starkly from Washington consensus. While there is no, ironically, consensus amongst scholars on whether or not Beijing consensus should be considered “a thing”, the least that could be said about key themes on which Chinese policies are based, is that China has focused on both strengthening market and state institutions, for which Stiglitz requires a balance between the two11.
Regardless of China’s approach posing a legit alternative theory to the Washington consensus, ideologically there are differences between the two principles of development strategy that matter. China’s way of operating on the domestic market and its attraction to foreign investors is influenced by the characteristics of the country itself. In contrast to the pure capitalist approach of the U.S., China’s market works within the margins of state capitalism and an authoritarian regime12. This means that, as any part of governing, actions of the government
such as the installment of laws on foreign investment, has to answer to the people of China 8 Guan, "Beijing Consensus and Development Legitimacy: The Evolution of China’s Foreign Direct Investment (FDI) Regime from a Law & Development Perspective," Asian Journal of Comparative Law 12, no. 1 (2017): 116.
9 Potter, “China’s Equity Joint Venture Law,” 3.
10 Guan, “Beijing Consensus and Development Legitimacy,” 119. 11 Guan, “Beijing Consensus and Development Legitimacy,” 128.
(indirectly), because an authoritarian regime like China needs legitimacy in order to be able to function effectively. With this fundamental difference, Beijing’s developmental approach distances itself from the democratic Washington consensus.
All this is background to understand the framework this new Foreign Investment Law has been presented in. The mentioned functions of law assist the answering of what China is communicating with the new law and the theory around Beijing and Washington consensus aids us in understanding why there is a difference between the speaker and the listener in this equation.
China and the U.S. with regards to China’s Foreign Investment Law
Predecessors of the Foreign Investment Law
To understand the context in which a new Foreign Investment law had combined and altered existing laws around foreign investment, I would like to discuss the legal background of foreign investment since 1978. To briefly explain this decision for those who are not familiar with China and its legal system: in 1978 the Chinese government (two years after Mao
Zedong’s death) decided to move from an isolationalist way of practising politics to reforming with the intention of “opening up” (改改改改). The current legal system was created after the reforms that started in 1978. Discussing anything that has to do with previous laws or a legal system, like during the Maoist era, is not relevant to this topic.
In the process of opening up, three laws that have to do with foreign investment have been created. The first one was adopted in 1979: the Equity Joint Ventures Law. This law aims to assist expanding international economic co-operation and technological exchange and permits foreign partners to form a joint equity venture with Chinese companies. Three articles in this rather short law stand out and largely have to do with treatment and legal rights of domestic and foreign partners of the equity joint venture. For example, article 7 allows an equity joint venture to establish a trade union to ensure the rights of employees13. Article 8
states that an equity joint venture may enjoy preferential treatment in the form of tax reductions or exemptions14. Finally, article 16 deals with the handling of disputes. First and
foremost, the law assumes an arbitration clause in the contract between the partners of the equity joint venture. Only if this is absent, or a dispute is unable to be settled through consultation, can the partners file a lawsuit in a people’s court15, suggesting that the
government encourages the use of non-judicial means of dispute settlement, but does not force any settlement outside court16. So while on the one hand, foreign partners can enjoy
benefits like tax reductions, on the other hand solutions for settling disputes are not optimal, since the law favors the disputing actors to solve the problems themselves over directly taking it to court, leaving the domestic partner(s) at a possible advantage because they are more familiar with the country, language and its rules and conventions.
12 Guan, “Beijing Consensus and Development Legitimacy,” 128.
13 “Law on Sino-Foreign Equity Joint Ventures - 改改改改改改改改改改改改改改改改” National People’s Congress of the People’s Republic of China, last modified September 2016, http://www.npc.gov.cn/zgrdw/npc/xinwen/2016-09/06/content_1997113.htm, article 7.
14 National People’s Congress of the People’s Republic of China, “Law on Sino-Foreign Equity Joint Ventures,” article 8. 15 National People’s Congress of the People’s Republic of China, “Law on Sino-Foreign Equity Joint Ventures,” article 16. 16 Wang, Chinese Law, 273.
This complements earlier scepticism on the first edition of the law (1979), regarding it as suffering from vagueness and the lack of complementary domestic legal framework17,
although unsurprisingly so, the whole Chinese legal system has been reformed and reinvented only a year before and in the course of the years the law has been clarified in the direction of accommodation to the foreign investor18. On the other side of the spectrum, there are Chinese
who are worried what this law’s possible effect on the economy would be. Due to the minimum requirement of 25% of investments having to come from the foreign partner and there being no limit on the maximum share, there are some Chinese who fear that the economy will eventually fall into the control of foreign hands19.
The second law was adopted in 1986: the Solely Foreign-Invested Enterprises Law, otherwise known as Wholly-owned foreign enterprises. This law has the same objective as the Equity Joint Ventures Law and allows foreign investors to establish enteprises with sole foreign investment (capital being completely provided by a foreign investor) within Chinese territory. I will again pick a few remarkable articles from this law. Articles 4 states that enterprises with sole foreign investment shall not harm the social order or public interest of China20. Article 5 even gives the Chinese State the authority to expropriate an enterprise with
sole foreign investment, if it is necessary to the “public interest” (a compensation will be paid)21. This gives a lot of power to the Chinese government, but might be less problematic if
there would be more clarity for foreign investors to determine what the Chinese state deems as “harming” activities. The law does not specify at least. Again, this is a disadvantage for foreigners who are not familiar with doing business in China. Being a foreign investor leads to more problems, since solely foreign-invested enterprises have no Chinese partner to help them with the application to the relevant authorities. One of the challenging requirements is a completed application form in Chinese only (although other documents can be presented in English)22. So there is not only a cultural and legal barrier, but also a language barrier that
foreign investors are confronted with.
This demonstrates that the necessary bureaucracy is not easy to navigate. Applications for such enterprises need to be examined and approved by the State Council and have a 90 days window for a response23. Within 30 days followinig the approval, the foreign investor
must apply for registration with the industrial and commercial administrative authorities and obtain a business license24. On the other hand, the staff and workers of an enterprise with sole
foreign investment may establish a trade union, just as it stated in the Law on Equity Joint 17 Potter, “China’s Equity Joint Venture Law,” 2.
18 Ibidem, 4.
19 Wang, Chinese Law, 270.
20 Law on wholly foreign-owned enterprises - 改改改改改改改改改改改改改改” National People’s Congress of the People’s Republic of China, “Last modified August 31, 2005, http://www.gov.cn/banshi/2005-08/31/content_69774.htm, article 4.
21 National People’s Congress of the People’s Republic of China, “Law on Wholly Foreign-Owned Enterprises,” article 5. 22 Wang, Chinese Law, 263.
23 National People’s Congress of the People’s Republic of China, “Law on Wholly Foreign-Owned Enterprises,” article 6. 24 National People’s Congress of the People’s Republic of China, “Law on Wholly Foreign-Owned Enterprises,” article 7.
Ventures25. What the law does not include is a clause about settling disputes. Chinese Law in
general, as is also observed from the Equity Joint Ventures law, encourages disputing parties to resolve their differences through negotiation and mediation, and if necessary, wholly foreign-owned enterprises can submit a dispute to the China International Economic and Trade Arbitration Commission26.
The third one was adopted in 1988: the Co-operative Joint Ventures Law. With the same objective as the former two mentioned laws, this law encourages foreign partners to establish co-operative enterprises with Chinese partners. The difference between an EJV and CJV is that co-operitive joint ventures have a greater flexibility in terms of structure and money. An EJV is legally limited to the foreign partner receiving the same ratio of profit in accordance with capital contributions, and in a CJV Chinese and foreign partners can negotiate this ratio themselves. This is mostly due to article 8, which gives a broad definition of investment, such like land-use rights and non-patented technology27. Just like EJV’s, CJV’s can enjoy the
benefit of reduction or exemption of tax payments28 and, when disputes arise, the same course
of action is encouraged29. There are more similarities between EJV’s and CJV’s embedded in
law, but it seems redundant to point them all out, whilst there is more to gain from seeing where they differ. Another distinct feature is that CJV’s are allowed to obtain loans, both from Chinese territory as well as overseas30.
These laws all underwent change of contents, adding or deleting important rules and issues, not only to appeal to foreign investors and to be able to compete on a global level, but also because to keep responding to domestic economic development31. Some of these changes
have created uncertainty for foreign investors with regards to important issues such like market access. For example: the manufacture of cars was on the “encouraged” category in 2007, but was moved to the “restrained” list in 201132. Not only uncertainty in and through the
change of these laws created friction, but also the relation between authoritarianism, or rather the state’s involvement with law and business, law and foreign investment gave rise to friction between China and foreign entities. About two decades ago, Potter stated exactly this
interaction, emphazising the role of the state in foreign investment, is likely to entail ongoing tensions, that at that time did not appear to be close to resolution33. The current tensions
25 National People’s Congress of the People’s Republic of China, “Law on Wholly Foreign-Owned Enterprises,” article 13. 26 Wang, Chinese Law, 267-68.
27 “Law on Sino-Foreign Co-operative Joint Ventures,” Ministery of Commerce Website, last modified January 27, 2003.
http://english.mofcom.gov.cn/article/lawsdata/chineselaw/200301/20030100065891.shtml, article 8. 28 Ministery of Commerce Website, “Law on Sino-Foreign Co-operative Joint Ventures,” article 20. 29 Ministery of Commerce Website, “Law on Sino-Foreign Co-operative Joint Ventures,” article 25. 30 Ministery of Commerce Website, “Law on Sino-Foreign Co-operative Joint Ventures,” article 17.
31 Bian, Yongmin, “A Revisit to China’s Foreign Investment Law: With Special Reference to Foreign Investment Protection,” 동동동동동동동 8,
no. 2 (2015): 50.
32 Bian, “A Revisit to China’s Foreign Investment Law,” 455.
between China and the U.S. seem to confirm this, although the manifestation of the current tension as opposed to that in the ‘90s is rather different (I am reminded of the contrast
between trade war and tarrifs and praise the U.S. has given China). Despite some flaws in the laws and in the division of these laws in the first place, the liberalization of investment policy that came with the decentralization of government control over foreign investment gained foreign investors’trust over time34.
Law on Intellectual Property
The new Foreign Investment Law is meant to replace the Equity Joint Ventures Law, the Solely Foreign-Invested Enterprises Law, and the Co-operative Joint Ventures Law. These laws are often spoken of as the foundation for the Foreign Investment Law, but there are more laws affecting foreign investment and international complaints about China’s investment climate. However, it is more worth looking at what law does not exist: an Intellectual Property Law. The notion of the necessity or added value of propecting IPR was not heartily endorsed by the NPC prior to the 1980s35. It is true that
there are relevant laws like the Patent Law and the recently added E-commerce Law, but those are just bits and pieces and they do not form a completed puzzle.
This is a clear demonstration of the different views on Intellectual Property by China and the U.S. While adopting roughly the same definition of Intellectual Property and there being no substantial difference of the understanding of Intellectual Property, it does not hold the same authority, so to speak, as in the U.S. Rights in general are not seen as embedded in nature that are just assumed exist. Instead, the Chinese view IP rights as artificial rights that are granted by the law36, resulting in a disjointed scala of
laws that handle some form on or issue around Intellectual Property, such like the Patent Law, the Trademark Law and the E-commerce Law, without a general law like a well-rounded Intellectual Property Law. Wang states this is derived from two basic propositions: 1) a cultural aspect that views Intellectual Property as common wealth of human society and 2) the purpose of protecting IP is to promote scientific and technological researches and encourage cultural and economic developments in China37.
Acting out of this “wisdom” instead of a principal belief that IPR should be protected in and of its own, would explain China’s obedience in improving laws around IP for WTO accession in 2001 and China’s continuous efforts of shown with the new Foreign Investment Law, that again, is aimed at improving trade relations with the U.S., which is more an economic consideration rather than a moral one. Regardless of the intention of China’s actions, legal improvements around IPR protection have been made also in the new Foreign Investment Law. Legal references to IPR protecton is slightly meagre, but it does not need to be elaborate because this law is not meant to replace the Patent Law or anything of the like. Article 22 of the newly adopted Foreign Investment Law clearly states that “the State protects the intellectual property rights of foreign investors and foreign-invested enterprises; protects the lawful rights and interests of intellectual property rights holders and relevant rights holders; and for acts infringing on 34 Guan, “Beijing Consensus and Development Legitimacy,” 120.
35 Wang, Chinese Law, 499. 36 Wang, Chinese Law, 498. 37 Wang, Chinese Law, 499.
intellectual property rights, strictly pursue legal responsibility in accordance with law”38.
If law has expressive, communicative and normative functions, then it is worthwhile to look at the intention of the law that is passed (in this case China’s intention, insofar that this can be articulated) and the reception of those who it concerns (Chinese citizens, companies and American companies and government), because language is susceptible to variable interpretations by its speakers and listeners. Why is it important for this thesis to involve the United States of America? One: the new Foreign Investment Law is partly aimed to ease tensions between China and the U.S., it therefore has a purpose that surpasses Chinese domestic legislature. Two: this law surpasses simple legal practice, since it adresses treatment of foreign entities, it naturally influences international relations, since those relations are positively or negatively influenced by the nature of such treatment, it does not have the same level of impact as getting a fine for littering. Third, quite obviously, it concerns two major powers, and it is especially relevant to include the U.S. (as opposed to example the European Union), in the context of the trade war between China and the U.S. It thus would be more remarkable to exclude the U.S. than to include it when discussing the Chinese new Foreign Investment Law.
China’s story
Let us first delve into the specifics of the Chinese part of the story. Having discussed the background behind foreign investment laws in China, it makes it easier to understand the rethoric and choices around the new Foreign Investment Law. Firstly, I will show how the Chinese government tries to demonstrate that they keep the interests of foreign investors in mind. There is an infographic that explains the law to foreigners. In this infographic, four articles are picked from the law and accentuated, therefore this decisionmaking can demonstrate the priorities of focus for foreigners according to China. These are as follows:
Article 22 forbids the government and its officials forced technology transfer, it has to be negiotiated
Article 26 new complaint mechanism for foreign investors to report their concerns to government authorities
Article 4 and 28 provide that foreign investors will enjoy equal treatment with domestic competitors, as long as their trade is not on the negative list39
From this can be deducted that China wants foreign entities and investors to know they have been working on improving the circumstances of technology transfer, a complaint mechanism, and treatment of foreign investors.
Supplementary, Premier Li Keqiang of the State Council of the People’s Republic of China has repeatedly voiced himself over the new Foreign Investment Law. In accordance with aforementioned articles from the law, Premier Li affirmed that technology transferring will be banned and enterprises of all types of ownerships will receive equal treatment40. These are not the only themes that China has worked on to
improve. Premier Li addresses a common heard complaint of violation of property 38 “Law on Foreign Investment - 改改改改改改改改改改改改改改改改,” People’s Government of the People’s Republic of China, last modified March 9, 2019, http://www.gov.cn/xinwen/2019-03/09/content_5372189.htm, article 22.
39 “Your Ulitmate Guide to China’s Foreign Investment Law Part III: Comparison,” The State Council of the People’s Republic of China, last modified July 9, 2019, http://english.www.gov.cn/policies/infographics/201907/09/content_WS5d23fb0bc6d03ce67879a085.html.
rights and promises enhanced Intellectual Property protection41. In addition, other
international complaints have been addressed: Premier Li vowed that China would take the initiative to further reduce the overall level of tariffs and reduce non-tarrif barriers as part of efforts to expand imports in goods and services and that China would not resort to competitive devaluation of its currency, keeping the exchange rate of the yuan at a reasonable and balanced level42. Lastly, critique on the negative list has been taken into
account. Vice-Minister of Commerce Wang Shouwen, also deputy China International Trade Representative stated that the ministry was collaborating with relevant departments to further trim the negative list43. This is part of the gradual process of
opening up. After President Trump took office in the U.S. several amendments have been made already. The most current list is divided into two categories: in Free Trade Zones the items for foreign investors have been cut down from 45 to 37, and non-Free Trade Zones have been cut down from 48 to 4044.
In a broader sense, China attempts to create a more friendly and mutually beneficial business environment. The theme of opening up starting in 1978 is still a theme today. Premier Li states that China will open up wider and is committed to a market-oriented and law-based international business environment45. This concretely
refers to the full liberalization of the manufacturing sector and an acceleration of the opening-up of China’s service sector. An example that supports the efforts of improving of the international business environment is the adoption of the new E-commerce Law. Previously, intellectual property owners in China have complained about the fact that they have won many cases but lost money, specifically spending money in acquiring evidence and hiring lawyers and experts, which the compensation did not (fully) cover46. In the E-commerce law there are a few articles that specify the instances
regarding who has the right to how much money. Article 76 to 84 lay out minor and major violations of this law and fines that range from 10.000 to 2 million yuan (RMB)47,
approximately 1.500 to 300.000 USD. This law, despite the already existing legislation 40 “More Preferential Policies for Foreign Investment come into play,” The State Council of the People’s Republic of China, last modified March 28, 2019, http://english.www.gov.cn/premier/news/2019/03/28/content_281476584353386.htm.
41 “Premier Li holds talks with US business representatives,” The State Council of the People’s Republic of China, last modified September 10, 2019, http://english.www.gov.cn/premier/news/201909/10/content_WS5d77a868c6d0bcf8c4c132a0.html.
42 “Premier Li unveils moves to broaden market access,” The State Council of the People’s Republic of China, last modified July 3, 2019,
http://english.www.gov.cn/premier/news/2019/07/03/content_281476745666106.htm.
43 “China to update negative list for foreign investment,” State council of the Republic of China, last modified April 30, 2019,
http://english.www.gov.cn/state_council/ministries/2019/04/30/content_281476636576644.htm.
44 “China opens more sectors to foreign investments with negative list,” China Daily, last modified June 30, 2019,
https://www.chinadaily.com.cn/a/201906/30/WS5d181e2aa3103dbf1432b089.html.
45 The State Council of the People’s Republic of China, “Premier Li holds talks with US business representatives.”
46 Lee, Niklas Bruun and Mingde Li. Governance of Intellectual Property Rights in China and Europe. (Cambridge, Massachusetts: Edward Elgar Publishing, 2016), 81.
47 “E-commerce law,” People’s Republic of China, last modified August 31, 2018,
protecting patents, trademarks and copyright, will mark the first time victims of IP theft can sue for damages48.
Besides delving into the legal points that are addressed in the law and where China puts emphasis on, this law as a whole has a message too. The quick adoption of the Foreign Investment Law was partially possible because there was a larger draft (2015) that has been narrowed down and because there was already a legal basis from which to work, which “just” needed to be amended, referring to the discussed Equity Joint Ventures Law, Solely Foreign-Owned Enterprises Law and Co-operative Joint Venture Law. Aside from that, all the way from preparing for WTO accession to the present, China has been reforming to carry out its promises. For example, China has not started improving IPR enforcements since this law has been approved, so the law should not be viewed at as an isolated case, but it plays another part in how China deals with foreign investors. It therefore is more like an official pledge or demonstration of what China envisions for the handling of foreign investment and trade within China. It tells the world, specifically the U.S., that China is so committed to addressing international grievances that improvements are captured in law. Many high-level Chinese officials have stated that the implementation guidelines and other corresponding legal changes will be developed prior to the law going into effect. The content of these guidelines and future corresponding changes to other laws to become consistent with the FIL will largely determine the impact it will have on the investment climate49.
The Foreign Investment Law is also a tool for one of the main ideals in China: the Chinese dream (改改改). This idea, introduced in 2012, pursues the rejuvenation of the Chinese nation as a dream of the whole nation, as well as every individual50. Strategies
that are used for this rejuvenation include “continuing with comprehensive reform and opening up” and “uphold the rule of law”. This then makes clear why the Chinese dream is linked to the Foreign Investment Law, because it helps facilitate those strategies for the higher purpose of rejuvenating China. But aside from appealing to citizens domestically with the Chinese dream, China now also presents their dream, and also the Foreign Investment Law as one of its tools, as beneficial and relevant to other countries. China argues that the Chinese dream is connected to everybody’s dreams and will bring more opportunities to all other countries, as demonstrated in this quote of President Xi:
“China and the United States once walked with animosity, have grown into a community with our interests closely converging. […] Together, we (President Xi and President Trump) have mapped out a blueprint for advancing China-U.S. relations. We both agree that China and the United States should remain partners, not rivals. We both agree that when we work together, we can accomplish many great things to the benefit of our two countries and the whole world. The 19th Party Congress will bring even more
opportunities for China’s cooperation with the United States and other countries. Indeed, the Chinese dream is closely connected with the dreams of people of all other countries in the world51.”
48 France-Presse, A. “China to allow victims of IP-theft to sue for damages.” ABS CBN News, December 24, 2018. 49 “2019 Investment Climate Statements: China,” US Department of State website, accessed December 14, 2019,
https://www.state.gov/reports/2019-investment-climate-statements/china/.
50 “Xi looks ahead with the Chinese Dream and its worldwide impact as NPC sessions closes,” People’s Network, 20 march 2018
Apart from trying to depict a win-win situation for China and other countries (the U.S.
included), China also communicates with the Chinese dream and the Foreign Investment Law within and outside of that framework, that a “great, prosperous and strong China will be a contributor rather than a threat to the world”52. The rise of China is a concern that has arisen in
the Western hemisphere since China’s economic success since the reforms of 1978, and in arguing against that notion China attempts to take away pressure from international relations. The Foreign Investment Law is one of China’s “arguments” so to say, and is a signal from China that it intends to keep reforming and opening up and is willing to make concessions in favor of the interest of foreign investors, and therefore is not a threat to the U.S. and other countries, but a promotor of free trade, economic globalization and win-win cooperation.
So with the new Foreign Investment Law, China has demonstrated a lot of issues it is willing to take on in order to ease tensions between China and the U.S. Under the heading of opening up, reforming and creating a friendly business environment, China pledges itself to install a complaint mechanism, ban forced technology tranfser, ensure equal treatment if a company does not conduct business in one of the industries that is on the negative list, and China also further trims down the negative list, to keep the exchange rate of the RMB reasonable and enhance IPR protection. With these measures, written down in the Foreign Investment Law as well as communicated when this law was brought up in conversations or press conferences, China communicates that is it not a threat to the U.S., does not intend to disadvantage foreign companies, values the rights of foreign companies and is willing to accept some changes in order to ease trade tensions with the U.S. in their favor, whilst also stressing that win-win cooperation is beneficial to Chinese companies as well.
U.S.’ story Prior complaints
We have arrived at the core of the issues around China-U.S. bilateral relations and China’s response in the form of a new Foreign Investment Law. The sped-up adoption of the law was largely based on insatisfaction from the U.S.’ side. This section first explores the main points of conflict from the U.S.’ viewpoint and then how the U.S. reacts on China’s new Foreign Investment Law.
On the U.S.’ government site is a statement on how the US views its bilateral economic relations with China. Leaving out the numbers on two-way trade, this is as follows:
The United States seeks fair and reciprocal trade with China, and works to protect American workers and businesses from unfair Chinese economic actions, including market access restrictions, forced technology transfers, and weak protection of intellectual property rights53.
In this statement, a few major points of U.S.’ commentary on China and foreign investment are spoken of in a clear manner: 1) market access restrictions 2) forced technology transfers and 3) weak IPR protection. It also becomes apparent that in an overall sense, U.S. is of the opinion that China treats the U.S. unfairly. This is especially important because trade is “a
51 “Remarks by President Trump and President Xi of China at State Dinner,” The White House, Beijing (China), last modified November 9, 2017: https://www.whitehouse.gov/briefings-statements/remarks-by-president-trump-and-president-xi-of-china-at-state-dinner-beijing-china/. 52 People’s Network. “Xi looks ahead with the Chinese Dream and its worldwide impact as NPC sessions closes.”
very big issue for the United States now, because for years[…] many things have happened that have led to trade imbalances, and we’re going to turn that around”54.
Let us first look at the complaints about market access restrictions. The biggest example for this issue is the negative list. This categorizes market access and divides economic sectors that foreing investors can access and ones they cannot. Some of the complaints have been adressed and as stated before, China has narrowed the negative list down significantly, opening financial services and car manufacturing for example. The U.S. acknowledges that China reduced some restrictions in 2018, but critiqued that “many industries important to U.S. investors remain restricted, including financial services, culture, media, telecommunications and transportation equipment”55. So China has addressed fields of investment that the U.S.
complained about specifically and made openings in those fields, but in 2019 the U.S. states that “many foreign investors remain underwhelmed and disappointed by Chinese
government’s lack of ambition and refusal to provide more significant liberalization”56. It
must be noted that this is a reaction to the reduction of restricted sectors from 63 to 48, while the current number of restricted sectors in the non-Free Trade Zone is lower, namely 40 as mentioned before. It is also worthwhile to note that the report took the highest number of restricted sectors, as the number of restricted sectors in Free Trade Zones are lower than those in the non-Free Trade Zones.
The second big issue the U.S. has with China is theft of American Intellectual Property. It is claimed that Chinese IP theft has cost the U.S. $225 billion to $600 billion a year, making Chinese-based companies the largest IP infringers of U.S.’ products57. The U.S. is aware of the
efforts of China to get their laws in accordance with international standards to accommodate to the WTO standards it wished to join, but it still has critique on certain aspects. It is thought that the regime of enforcement of IP rights is ineffective and consequently poses a challenge to foreign investors trying to protect theirs58. The establishment of China’s specalized IP
courts also faces criticism from the U.S.: it will only have a limited effect until there is an increase in the amount of damages an infringer pays for IP violations59. The firmness in this
criticism against China may derive from the unlikeliness of Chinese actors of stealing
American IP being brought to justice in an American court60. This is based on past results. For
example, the Department of State is not aware of any cases since 1979 in which China has expropriated a U.S. investment, although the Department has notified Congress through the annual 527 Investment Dispute Report of several cases of concern61. While the U.S. has key
points of critique on China and its economic relationship with the U.S., Obama has been relatively inactive in combating IP theft and the suggesting that Trump should regard IP theft 54 “Remarks by President Trump before Bilateral Meeting with President Xi of China,” The White House, last modified July 8, 2017,
https://www.whitehouse.gov/briefings-statements/remarks-president-trump-bilateral-meeting-president-xi-china/. 55 US Department of State website, “2019 Investment Climate Statements: China.”
56 US Department of State website, “2019 Investment Climate Statements: China.”
57 “Theft of American Intellectual Property: Reassessment of the Challenge and United States Policy,” National Bureau of Asian Research, last modified February 2017, http://ipcommission.org/report/IP_Commission_Report_Update_2017.pdf, 1.
58 US Department of State website, “2019 Investment Climate Statements: China.” 59 Ibidem.
as a priority to deal with62, shows that it has in fact not been seen as a core issue within
American politics before. The Trump administration, however, has stated that Chinese IP practises threatens the very underpinnings of the U.S. market economy63.
The third issue the U.S. has with China is the practice of forced technology transfers. This is in relation to the complaints about IPR infringements. The charge of the U.S. is as following: transferring key technology to the domestic partners, when U.S. companies investing in China engage in joint ventures, is a condition for doing business in China64. The
logic behind this transfer being forced is not so much because of the informal but pressing condition, but more so the scarcety of alternatives to the size and importance of the Chinese market and the influencing of decisions of the business form towards a joint venture
partnership. This then cannot be regarded as being equal to IP theft, since less developed countries do not uncommonly impose performance requirements65. Still, imposed technology
transfer as a prerequisite to market access goes against the U.S.’ free market principle, as Vice-President Pence made clear66. Another side of this complaint is that where technology
was forced to be transferred in a more concrete sense, punitive actions were either not at all or too weakly enforced.
All these three issues which are related to each other, are fundamental issues that the U.S. has with China and trade. Micheal R. Pompeo, U.S. secretary of State, making a
distinguishment between the people and the government of China, states that the methods the People’s Republic of China uses have created challenges to the U.S., referring to the
compliance of U.S. companies investing in China to China’s terms, amongst other things and that is it time to acknowledge the fundamental differences between the systems of China and the U.S. and the negative impact it has on the U.S.67. The U.S. is convinced that market acces,
forced technology transfer and IP theft are costing the U.S. and its companies hundreds of billions of dollars a year and that these factors are driving the trade deficit, and this eventually led to the view that the trade relationship between China and the U.S. has not been fair to the U.S. for many years68.
So altogether, the U.S. thinks the way of dealing with foreign investors creates
disadvantages for U.S. investors, claiming U.S.’ business have to comply too much to China’s 61 US Department of State website, “2019 Investment Climate Statements: China.”
62 National Bureau of Asian Research, “The theft of American Intellectual Property,” 16.
63 Griswold, D. & D. J. Boudreaux, “How the United States should respond to China’s Intellectual Property Practises.” Mercatus Centre, George Mason University, April 2019, 1.
https://www.mercatus.org/system/files/griswold_and_boudreaux_-_policy_brief_-_how_should_the_united_states_respond_to_chinas_intelle ctual-property_practices_-_v1.pdf
64 Griswold, “How the United States should respond to China’s Intellectual Property Practises,” 2. 65 Griswold, “How the United States should respond to China’s Intellectual Property Practises,” 5.
66 “Remarks by Vice President Pence on the Administration’s policy towards China,” The White House, last modified october 4, 2018,
https://www.whitehouse.gov/briefings-statements/remarks-vice-president-pence-administrations-policy-toward-china/.
67 “The China Challenge,” U.S. Embassy & Consulates in China, New York City, New York, Hudson Institute’s Herman Kahn Award Gala, 30 oktober 2019, https://china.usembassy-china.org.cn/the-china-challenge/.
requirements and their rights are not upheld enough, which takes the shape of inaction and ineffective enforcements of punishments. What the U.S. ultimately wants is trade that is based on respect for the rule of law, private enterprise, trade reciprocity69, protection of the
intellectual property of its companies, a level playing field for their workers70.
At this point in time, from the beginning of 2019 to mid-March 2019 (before the Foreign Investment Law was adopted), contradictions start to arise, combining negative comments with extremely positive comments on the behaviour of and the relationship with China. Even though the U.S. makes some bold statements and blames a lot on China, the U.S. is not only negative. In fact, some remarks are surprisingly positive, especially considering that those are uttered just after a fairly negative statement. This kind of communication shows that the U.S. thinks there are serious problems that they would have addressed, but that they do not want it to be at the cost of less trade and a poorer trade relationship with China. This might sound contradictory, so let me provide an example that highlights this:
Right now, unfortunately, it is a very one-sided and unfair [trade relationship]. But I don’t blame China. After all, who can blame a country for being able to take advantage of another country for the benefit of its citizens? I give China great credit. But, in actuality, I do blame past administrations for allowing this out-of-control trade deficit to take place and to grow71.
These remarks were made by President Trump, right after stating the economic relationship with China is one-sided and unfair, and communicating their demands of China. So, instead of “blaming China” which his earlier remarks suggests, President Trump turns his complaints back towards the United States. This seems to be an attempt at maintaining a sustainable economic relationship with China, whilst preserving and pushing their demands of China. Some of the threats that are being used to force China into doing the U.S.’ bidding are the obvious tarrifs that are said to be increased before any trade negotiation in order to further a deal between the two countries. Secondly, bonds that are established and strengthened elsewhere in the Indo-Pacific, which concretely means forging new trade deals on a bilateral basis with countries that share the values of the U.S. (free, fair and reciprocal trade) and the position of an alternative to China’s “debt-trap policy”72. Although it can be argued that technically it is not a
threat, the communications are put on edge, the third aspect of the U.S.’ strategy is the usage of strong enforcement language73.
Despite “not blaming China” for the “unfair” economic relationship between China and the U.S., much more has been said about the situation prior to the adoption of the new Foreign Investment Law. In order to advance the China-US relationship, trade 69 Ibidem.
70 Ibidem. 71 Ibidem.
72 The White House, “Remarks by Vice President Pence on the Administration’s policy towards China.”
73“Remarks by President Trump in Meeting with Vice Premier Liu He of the People’s Republic of China,” The White House, last modified january 31, 2019:
negotiations have been taking place between President Trump, President Xi and Vice-President Liu (some of which I have referred to previously in this thesis). According to President Trump, this deal “will be, by far the biggest deal ever made – not only the biggest trade deal. The two largest countries doing a trade deal. There will not be anything that will match that”74. President Trump also reinforces the interests of
the U.S.: besides revering the trade negotiations and the prospect of a deal, he emphasizes that “both parties want to make this a real deal and we want to make it a meaningful deal”75.
All in all, the biggest isse the U.S. has with China during the Trump
administration is an unfair trade balance. The factors that constitute this problem and when eliminated or improved, are limited market access in China, Chinese theft of IP from American companies and the force of technology transfers. Parts of these factors influence other grievances of the U.S., such as the creation of disadvantages for U.S. companies, a trade deficit, the lack of trade reciprocity, the U.S. having to comply too much to China. Whilst the U.S. voices these displeasures strongly, often and repeatedly, it seems that the U.S. does have respect for China and does not only dwell on
complaining, but wants to take action and resolve their issues together with China. Reactions on and after the new law
I have just shown the key complaints of the U.S. about China’s way of going about foreign investment (market access, IPR violations and technology transfers) of the Trump
administration in combination with already existing issues the U.S. had with China and foreign investment. This section explores the Trump administration’s reaction to the Foreign Investment Law and indirect statements and courses of action after the adoption of the Foreign Investment Law, against the background of aforementioned complaints.
By characterizing the way China goes about treating foreign investors as unfair to the U.S., the president of the United States is authorized to eliminate allegedly unfair foreign trade practices, including “an act, policy, or practice of a foreign country that is unreasonable or discriminatory and burdens or restricts United States commerce76. Finding its basis in the
U.S. perceived unfairness around IPR, forced technology and the trade deficit, this resulted in Trump imposing punitive tariffs. This put a strain on the economic and diplomatic
relationship between the U.S. and China, inspiring a quick adaptation of the draft Foreign Investment Law and adoption of the amended version. The U.S. acknowledges that the new Foreign Investment Law made policy declarations on important issues to the U.S., but it is also observed it is significantly shorter and specifics on implementation and enforcement are lacking77, although this is explained by the quick amendments and adoption of the Foreign
Investment Law and action carried out within a short time span resulted in the shallowness of its contents and structure that the U.S. observes.
The shortness of the Foreign Investment Law leads to several forms of critique. In addition to earlier scepticism on the likeliness or trustworthiness of China’s promises, if you 74 The White House, “Remarks by President Trump in Meeting with Vice Premier Liu He of the People’s Republic of China.”
75 “Remarks by President Trump before meeting with Vice Premier Liu He of the People’s Republic of China,” The White House, last modified february 22, 2019,
https://www.whitehouse.gov/briefings-statements/remarks-president-trump-meeting-vice-premier-liu-peoples-republic-china-2/. 76 Griswold, “How the United States should respond to China’s Intellectual Property Practises,” 2.
look at the Foreign Investment Law as a statement of commitment, the U.S. still made an effort to persuade Beijing to adopt broad changes to Chinese laws to make the country more open to imports and to limit subsidies for industries, particularly advanced manufacturing industries that compete with American industries78. This is inconsistent with earlier remarks
on Chinese law in general, which was described by President Trump as tougher than the United States and expresses his appreciation for the benefit of the toughness and therefore effectiveness of law enforcement to the American endeavor against the war on drugs79. It is
not clear which stance the U.S.. has towards the trustworthiness of law enforcement in China, though it should be noted that the context of the remarks can be divided into categories such as drug use and trade, which are very different subjects. It can therefore seem that on the matter of American companies investing in China the U.S. is a lot more critical of enforcement of punishments when it comes to IPR than drugs. The U.S., however, has expressed faith in China’s Vice Premier’s commitment to reform in China80, although that
should not be confused with having faith in the complete legal system and enforcement of those reforms.
In addition, the U.S. also identifies and critiques market-distorting forces, like subsidies and state-owned enterprises (SOE’s)81. Most state-owned enterprises that exist today are
leftovers of reform to privatize state-owned enterprises and had such a relevance or success that they maintained their “right to exist” and gained monopolistic powers backed by
government funds or favorable policies. Concretely, this means for U.S. investors SOE’s can simply outbid them and in that way have a significant competitive advantage. This shows that, even though the U.S. observes and acknowledges China’s efforts, the Foreign Investment Law did not satisfy the U.S. when it comes to market access.
President Trump has also clearly expressed that he wants Amercan companies to start looking for an alternative to China, citing International Emergency Economic Powers Act (IEEPA) that allows dealing with an unusual and extraordinary threat to the national security, foreign policy, or economy of the United States. This was supported by White house
economic advisor Larry Kudlow82. President Trump has a very specific (though seemingly
incoherent) connections between trade with China and its implications for the U.S. As shown in a quote belown he equals trade to China’s military might, insinuating a correlation between economic policy and national security:
“Obviously, China is a threat to the world in a sense, because they’re building a military faster than anybody,” Mr. Trump said. “I view China in many different ways. But right now, I’m thinking about trade. But, you know, trade equals military.”83
78 Bradsher, Keith and Ana Swanson, “Despite tough talk, U.S. China Trade Negotiations continue,” New York Times, September 21, 2019,
https://www.nytimes.com/2019/09/21/business/united-states-china-trade.html.
79 The White House, “Remarks by President Trump before meeting with Vice Premier Liu He of the People’s Republic of China.” 80 “Remarks by President Trump and Vice Premier Liu He of the People’s Republic of China Before Bilateral Meeting,” The White House, last modified April 4, 2019,
https://www.whitehouse.gov/briefings-statements/remarks-president-trump-vice-premier-liu-peoples-republic-china-bilateral-meeting/. 81 “Statement of the United States regarding China Talks,” The White House, last modified January 31, 2019,
https://www.whitehouse.gov/briefings-statements/statement-united-states-regarding-china-talks/.
Despite the trade war and the heavy criticism on the Foreign Investment Law, President Trump states that the relationship between “him and President Xi is a very amazing one, a very good one”84. Behaviour has been displayed that support this. For example, President
Trump delayed an October (2019) tariff escalation “in exchange for Chinese concessions”85.
Overall, the tone of voice has changed in 2019. Before the Foreign Investment Law was approved, the U.S. government still talked about threats like tariffs and aforementioned grievances, but gradually there came more compliments and statements about progress from the White House. Having complained about the shortness of the Foreign Investment Law, the US seems to have let go of this kind of strubble between the U.S. and China as this trade deal could possibly add anything they feel is missing from the Foreign Investment Law into the negotiations and the establishment of the trade deal that has been negotiated through almost the whole of 2019. One of the things that has been critized in Chinese Laws on Foreign Investment was the absence of dispute settlement: this will be put together in the final phase of the trade deal86.
Other changes in the U.S.’ communication about China are largely positive. Because of the trade negotiations taking place in 2019, President Trump made several remarks that tell us that the US adopted a more positive view of the trade relationship between China and the U.S.:
“[The trade deal is] a very, very “comprehensive” deal. It’s very complete. We discuss everything. We talk about everything. When we first started, people would say, “Well, you’ll never talk about intellectual property. You’ll never talk about a vast array of elements.” Every one of them is not only talked about, but highly negotiated. […] We have to make sure there’s enforcement. I think we’ll get that done. We’ve discussed it at length.87”
“We’ve come to a deal on intellectual property, financial services. […] We’ve had very good discussions with Governor Yi, head of the People’s Bank of China […] on financial services, opening up their markets to our financial services firms. So that we have pretty much almost a complete agreement on both those issues. And as you know, Mr. President, currency has been a very big concern of yours since the campaign. And we have an agreement around transparency into the foreign exchange markets and free markets. So we’re very pleased with that. […] China has really been opened up now, for the first time, to financial services and to the
big banks and credit card companies and other types of financial services.88”
This shows that key issues of the US has, in their eyes, been addressed and “highly”
negotiated, such as Intellectual Property, law enforcement, financial services and opening up or rather, market access. Not only does the U.S. acknowledge that their problems are being addressed and negotiated, they express pleasure about the progress on those issues. As seen in the quotes above, President Trump expressed his satisfaction with the increase of transparancy 83 Alan Rappeport, “Trump calls China a “threat to the world” as Trade talks approach,” The New York Times, September 20, 2019,
https://www.nytimes.com/2019/09/20/us/politics/trump-china-theat-to-world.html?module=inline. 84 Ibidem.
85 Adam Behsud, “Business groups' complaints show how Trump's China deal falls short on foreign investment,” Politico, November 4, 2019, https://www.politico.com/news/2019/11/04/business-groups-china-trump-deal-065696.
86 “Remarks by President Trump and Vice Premier Liu He of the People’s Republic of China in a Meeting,” The White House, October 11, 2019: https://www.whitehouse.gov/briefings-statements/remarks-president-trump-vice-premier-liu-peoples-republic-china-meeting/. 87 The White House, “Remarks by President Trump and Vice Premier Liu He of the People’s Republic of China Before Bilateral Meeting.” 88 The White House. “Remarks by President Trump and Vice Premier Liu He of the People’s Republic of China in a Meeting.”
into the foreign exchange markets and free markets and that China has opened up its financial services.
This section has attempted to depict the core issues between China and the U.S. from the viewpoint of the Trump administration before the Foreign Investment Law was adopted, and the reaction to the Foreign Investment Law, along with general viewpoints on trade with China, derived from and related to that law. To summarize this: the U.S. expressed that trade with China has been unfair, because of 1) market access restrictions – such as the black list, which was altered, but not enough, so that sectors like financial services were still closed off, and the existence of huge Chinese monopolies, 2) forced technology transfers – the issue is with the observation that this is a condition for doing business in China, which clashes with the American free market principle and 3) weak IPR protection – while the establishment of IP courts was meant as an improvement, the U.S. is sceptical and thinks they have limited effects until there is an increase of damages paid by the culprits and the U.S. states that Chinese practices threatens the underpinnings of the US market economy.
The communication of the U.S. shifted from largely complaining, to a combination of complaints and compliments and after the Foreign Investment Law was adopted this changed to largely compliments and praise towards China, whilst also mentioning improvements expected/demanded in the future. At first, the U.S. did acknowledge that with the new Foreign Investment Law policy declarations cover important issues, but it is critiqued for its shortness and the lack of specifics on implementation and enforcement and the absence of dispute settlement. However, the adoption of the new Foreign Investment Law showed that China was willing to talk about important issues to the U.S. and enabled trade negotiations. Contrary to earlier sentiments of the untrustworthiness of China, President Trump has expressed his faith in China’s Vice Premier’s commitment to reform. Alongside advice to American companies to look for alternatives, and critique on China’s “debt-trap policy”, China has been praised for opening up its financial services and the improvement of law enforcement.
Discussion
The two stories of both China and the U.S. can be combined in one new narrative. China has tried to ease tensions with the U.S. by adopting a new Foreign Investment Law and both China’s communication as well as the reaction of the U.S. has been analyzed. Naturally, there is some common ground and disagreement, but how is that divided?
China has tried to meet the U.S. halfway by policies that address and improve issues that the U.S. has been criticizing. Sometimes it seems that the two actors live in two different world. For example, whereas China heralded the new cuts from the negative list, cutting items in non-Free Trade Zones from 48 to 40. The U.S. has responded that it was not satisfied with that number, while China seems to be proud of that progress. That is not in the least because that is not the final result they want to show to the U.S., because it is a gradual process of opening up, which has been the Chinese strategy for the past few decades. It is likely to be expected that the negative list will be trimmed down in the future.
Most of the criticisms that China has been given, existed before President Trump took office, but he combined all those issues under one easy description: unfair. So what exactly constitutes this unfairness? In any case it includes the business environment, which was not accessible enough due to the negative or black list. This list was trimmed down by China and the U.S. was not impressed at first, but when the financial services industries opened Trump praised China on this and saw this as a sign that China is opening up. What also contributes to an unfair business environment according to the U.S., is the forced technology tranfser that takes place as a premise for doing business in China. In the new Foreign Investment Law, this is banned.
