Business in China, always an education

students_smallThe past few months have been anxious times for European business in China. First, we saw with the promulgation of the National Security Law, and the releases of the Trial Measures for the National Security Review of Foreign Investments in China’s Pilot Free Trade Zones (Trial Measures), the Foreign Non-Governmental Organisation (NGO) Management Law (Draft) and the Cyber Security Law (Draft). These pieces of legislation will all potentially have a large, adverse impact on the investment environment in China.

Second, the Chinese Government’s response to the recent stock market crisis is very much contrary to the free market principles espoused in the reform vision of the Third Plenum’s Decision to “let the market play the decisive role in allocating resources”. The government’s reaction to the stock market crisis has been a sobering experience, and the credibility of the Chinese stock markets is now at stake.

These developments have prompted the Chamber’s members to ask two important questions: Do we have more legal certainty in this country? and, Where are market forces still lacking? Our task as the independent voice of European business in China is to seek answers to these questions through closer engagement with the relevant government authorities.

The Chamber spoke out on the national security-related laws, and requested that the National Security Law (Draft) ensure greater legal certainty for foreign investors by removing the economic references as well as the vague criteria pertaining to social and industrial security. It was extremely consternating to see that the final version of the law is in fact worse in certain clauses.

This is yet another case that reinforces the sentiment of our members that the unpredictable legislative environment is the main regulatory obstacle to conducting business in China, as highlighted in our Business Confidence Survey 2015. The elusive definition of what exactly constitutes ‘national security’, inherent in all of these broad pieces of legislation, has created a great deal of uncertainty for foreign business. The government is essentially at liberty to tacitly undermine foreign market access at any time, based on unclear and far-reaching national security considerations.

This situation bears striking similarities to the pending promulgation of the Foreign NGO Management Law. Whereas NGOs are currently registered with and regulated by the Ministry of Civil Affairs and local Civil Affairs Bureaus, under the new draft, promulgated on 5th May this year, registration and regulation will fall under the purview of the Public Security Bureau (PSB). One of the ideas behind this shift is to improve regulation of NGOs to ensure that they are operating responsibly. In reality the operations of many legitimate foreign NGOs could come under scrutiny if, for example, their advocacy activities are deemed to be negatively impacting ‘national security’.

The Chamber is extremely concerned about this draft law as many of our members would fall under its jurisdiction once promulgated, including foreign companies in the education sector, the sector that is the focus of this edition of EURObiz. Many international NGOs—from education institutions through to industry associations and environmental organisations—play an integral part in our members’ daily operations in China and make valuable contributions towards improving Chinese society. If promulgated, this law will make daily work impossible for some foreign NGOS resulting in many of them being forced to leave. China’s citizens clearly have a stake in this, too.

In many ways, the current debate surrounding national security is reminiscent of last year’s debate on the enforcement of China’s Anti-Monopoly Law (AML), in the sense that, as they stand, these laws will leave the enforcement authorities with ample scope for non-transparent conduct. When the Chamber spoke out on AML enforcement last year, our stance was positively responded to by the National Development and Reform Commission, who invited us for consultation on the matter. In much the same vein, the Chamber will continue this sort of on-the-ball engagement with the relevant government authorities on these national security-related laws for as long as it takes to secure a better outcome for our members.

electronic signature of Mr Wuttke





Jörg Wuttke
European Union Chamber of Commerce in China