China pushes through changes to foreign investment law as U.S. trade talks start

China has accelerated plans to introduce a new foreign investment law that will tackle some of the key sources of friction with the United States by banning forced technology transfer and better protecting intellectual property rights.

The decision came hours before Chinese and American negotiators were due to sit down in Washington for highly-anticipated talks on resolving their trade dispute.

The National People’s Congress, China’s rubber-stamp parliament, will vote on the new foreign investment law, which will replace three existing laws, during a session scheduled to open on March 5, the official Xinhua news agency reported Wednesday. It is sure to be approved.

“There is an urgent need for such a unified law to provide stronger legal protection for further expanding opening up and better using foreign investment,” Justice Minister Fu Zhenghua told lawmakers when introducing the draft during a special two-day session of the Congress’s standing committee this week.The speed with which China is enacting the law — Beijing will do in three months what usually takes at least a year — underscores President Xi Jinping’s eagerness to reach a deal and resolve the dispute.

Xi appears to be concerned that the trade war will exacerbate an economic slowdown that was already underway, analysts say.

President Trump has set a deadline of March 1 for the negotiators to reach a deal on rebalancing the countries’ trade relationship or face the risk he will further increase tariffs on Chinese imports. China ran a $344 billion trade surplus with the United States last year.

As of October, almost 950,000 foreign-funded companies were registered to operate in China and they had invested more than $2.1 trillion in China, the state news agency said.

[Critical China trade talks open amid tough U.S. action against Huawei ]The new law will help China attract more foreign investment and protect foreign investors’ rights and interests, Xinhua reported.

The law would strengthen intellectual property protection for foreign companies investing in China, and says that the state will “generally not” expropriate foreign investments. But lawyers noted that it said expropriation could be justified for vaguely-worded “social and public interests.”

It also states that the standard practice of forcing foreign companies to make their technology available to Chinese partners would now be prohibited, and that instead China would encourage “technological cooperation” on a voluntary basis that could be negotiated.

It also creates a more level playing field in which foreign and domestic companies would be treated equally in the eyes of the law, and allows foreign businesses in China to freely repatriate their profits.These are the kinds of structural changes that the United States and other capitalist democracies have been pushing for — a way to create a more equitable playing field rather than allowing Chinese companies to have preferential treatment and state subsidies.

Yao Xinchao, professor at the University of International Business and Economics in Beijing, said China was making the kinds of fundamental changes needed.

“China’s reforms always happen under external pressures, mainly from the U.S.,” he said. “China will make concessions but won’t do everything at one go, and some issues, like the business environment, just can’t be changed in a short period of time.”

Other Chinese commentators used the development to contend that the Chinese government was showing its sincerity in the trade talks — in contrast to the United States, where the Justice Department this week filed an indictment against Huawei Technologies, two affiliates and its chief financial officer, alleging bank and wire fraud.“Beijing has shown its determination to pursue reforms that will further open up the economy, despite the tough challenges that lie ahead,” business columnist Hu Weijia wrote in the nationalist Global Times. “The U.S. and its allies need to offer the same sincerity to China in return and open their domestic markets, especially in the 5G industry.”

Huawei has been vying to build fifth generation high-speed cellular networks around the world and become the global leader in the new technology, but Western governments, led by the United States, have concerns about security.