CHINA Law and Practice Contributed by: James Hu, Yingjie Kang, Huihui Li, Sherry Xu, Bivio Yu and Lisa Zhao, Fangda Partners
1. Legal System and Regulatory Framework 1.1 Legal System
Negative List Foreign investors have the same access as locally owned enterprises to the PRC market, except for sectors identified in the Special Administrative Meas - ures for Market Access of Foreign Investment (Nega - tive List), the latest version of which took effect on 1 November 2024. Foreign investment restrictions fall into the following two categories: • prohibited sectors – in which foreign investment is fully prohibited (eg, postal services, tobacco wholesale, compulsory education and online publi - cation services); and • restricted sectors – in which foreign ownership is limited (eg, healthcare institutions, civil airport construction and operation, and certain telecom - munication-related sectors). It is worth noting that the latest version of Negative List has removed all the restrictions on foreign invest - ment in the manufacturing sector. 2. Recent Developments and Market Trends 2.1 Current Economic, Political and Business Climate Based on data published by China’s central govern - ment, FDI in China for the first nine months of 2025 increased by 16.2% from a year earlier. The Chinese government has emphasised on sev - eral occasions its ongoing commitment to integrate with the global economy and to further liberalise the China market. This commitment has been supported through the promulgation of Foreign Investment Law and the opening up of the financial sector to allow full foreign ownership of certain financial services com - panies. China remains an attractive investment des - tination for investors looking for market, well trained engineers and talent, and stable infrastructure. In addition, there has been an increase in the volatility of China’s foreign and trade relations with the USA, Australia, EU and India, which has led to several retalia - tory and protectionist measures being promulgated by such jurisdictions. The heightened concern expressed
China’s legal system (excluding that of Hong Kong, Macau and Taiwan for the purpose of this article) is commonly accepted to be a civil law system. China’s legislative framework is premised on its Con - stitution, which designates the National People’s Con - gress and its Standing Committee as the supreme source of legislation. Regulations are promulgated at the central level, as well as the local provincial or municipal levels, with national-level laws taking pri - ority over provincial and municipal-level laws. Under China’s Constitution, the National People’s Congress and its Standing Committee may annul or override any laws promulgated by other administrative bodies. The judicial system in China comprises the Supreme People’s Court (the final appellate court), local peo - ple’s courts (at provincial, municipal, district or lower- level) and special people’s courts (courts designated for military, intellectual property or financial matters). Notwithstanding that the Chinese legal system is commonly accepted to be more aligned with civil law frameworks with no principle of binding judicial prec - edent like in common law jurisdictions, the Supreme People’s Court has issued guidelines requiring low - er courts to conform their judgments to the judicial interpretations of the Supreme People’s Court and the Supreme People’s Procuratorate. 1.2 Regulatory Framework for FDI FDI Review and Approval During the past three decades, foreign investments have been subject to a case-by-case approval sys - tem. Consistent with the recent trend towards market liberalisation, the Foreign Investment Law of 2020 marked the evolution of China’s case-by-case approv - al system for foreign-invested companies to a system that does not distinguish between foreign-invested companies and local companies for the purposes of establishment and registration, except in a limited number of sectors regarded as highly sensitive.
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