Leiden University Student Repository

Steur, Annemiek 2020

China’s Foreign Investment Law: reform to rebrand foreign trade and investment

Master thesis | Asian Studies (60 EC) (MA)

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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...Show moreOn 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. 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. 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? 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.Show less