The Revised Equity Joint Venture Law and WTO Accession

The most significant aspect of the Revised EJV Law concerns not the actual revisions, but rather proposed revisions that were debated by National People's Congress delegates but not included in the final Revised EJV Law. For example, the topics debated included allowing foreign investors to enter into a joint venture with Chinese individuals and permitting foreign investors to take less than a 25% stake in EJVs. Apparently, these suggestions have been rejected.

The rejection of these proposals is significant in that their rejection is a denial of the WTO principle of 'national treatment' that the Revised EJV Law is supposed to represent. The 25% foreign investment requirement is a defining characteristic of foreign investment enterprises (FIEs). Since the raison d'etre of the MOFTEC is to regulate foreign investment and, hence, FIEs, any erosion of the 25% foreign investment threshold would potentially severely undermine MOFTEC's authority. MOFTEC's power depends upon preserving the legal distinction between FIEs and domestic Chinese enterprises and maintaining the current dual legal systems applicable to foreign and domestic investment.

Tang Minhao (唐民皓) in his book, A Study of the WTO and Local Administrative Systems (WTO Yu Difang Xingzheng Guanli Zhidu Yanjiu)(WTO 与地方行政管理制度研究), makes the interesting point that although the WTO framework can accommodate countries with different political systems, the WTO is predicated on the assumption that member countries have market economies and governmental systems attuned to a market economy. China's political economy is in a state of transition. China's current administrative apparatus is largely an anachronism of the planned economy.1 Implicit in Tang's analysis is the suggestion that China's current governmental structure is incompatible with the WTO.

Tang's analysis is relevant to deliberations underlying the Revised EJV Law. During these deliberations, the suggestion to permit foreign investors to take less than a 25% stake in EJVs was apparently rejected. It is reasonable to extrapolate that the preservation of the 25% foreign investment threshold and, hence, China's dual legal regimes for administering FIEs and domestic Chinese enterprises is an example of bureaucratic intransigence in the face of the WTO principle of national treatment. In short, it is an example of a contradiction between one important feature of China's government system applicable to foreign investors and the WTO.

Once China becomes a WTO member these kinds of issues will become more acute given the deep involvement of China's government institutions in all levels of the Chinese economy. Although China has made determined efforts to separate government regulators from their commercial operations, there remains a de facto high level of government involvement in the economy. In this context, it is difficult to envision how effectively China will be able to create a bona fide level playing field consistent with the WTO tenet of national treatment.

By Steven Blayney,
Lovells,
Hong Kong

Endnotes:

1 Tang Minhao, Zhubian Shanghai: Shanghai Renmin Chubanshe, 2000, di 47 he di 255 ye. (唐民皓，主編《WTO与地方行政管理制度研究》上海：上海人民出版社，2000第47頁和第255頁。)