Generational Dynamics World View

[John J. Xenakis]

** 19-May-2019 China's Foreign Investment Law imposes draconian controls

When China passed its new Foreign Investment Law in March, I didn't
pay much attention since the media described it as "a move widely seen
as an effort to facilitate US trade talks." According to the news
stories at the time, the new law would make it easier for foreign
owned companies to do business in China by making them equivalent to
Chinese companies.

However, a subsequent analysis of this law shows that it has the
opposite effect. By making foreign owned businesses equivalent to
Chinese companies, it means that foreign owned businesss are exposed
to the full force of the CCP-military control.

According to an analysis in the China Law blog:

Quote: We wrote how we were not at all impressed with China’s
new Foreign Investment Law . Since then, a number of commentators
(who near as I can tell cannot read Chinese) have hailed the law
as a positive development for foreign companies doing business
with China and in China. The impression these commentators are
giving is that China’s new Foreign Investment Law (FIL) will raise
up foreign companies to become equal to Chinese companies.

This is just not correct. The intent of the new law is actually
the opposite and for people like me who have been doing business
with China for decades even the idea that it would be otherwise is
at least somewhat laughable. The intent and the reality of the FIL
is to pull down foreign investors to the status of privately owned
Chinese companies. At that level, foreign invested companies will
be firmly under CCP control and they will operate at a permanent
economic disadvantage to PRC state owned enterprises. In other
words, foreign invested companies in China will be crushed by the
PRC state in the same way nearly all private Chinese companies are
crushed by the state.

...

Foreign invested companies will now receive no incentives or
benefits at all. They will be treated the same as any private
Chinese company. They will pay tax at an effective rate of
60%. When they remit after tax profits to their shareholders, they
will pay an additional withholding tax of 15%. They will be
subject to the 17% VAT rate. They will pay the some of the world’s
highest rates for land and office rent. Perhaps most importantly,
they will be entirely under the control of the CCP and the Chinese
government. No “special status” will shield them. Among other
things, this will mean the following:

• When the CCP arrives to set up a party branch in the foreign
  enterprise, compliance by the foreign enterprise will be required.
  When the CCP branch insists on reviewing confidential company
  business records, compliance will be required.
  
  
  
• When the workers in even a five person office state that they
  will form a union controlled by the local CCP/government,
  compliance by the foreign company will be required.
  
  
  
• When the local telecom/ISP service states that it will set up
  the foreign company’s Internet and email server, compliance will
  be required. When the foreign company is told it can no longer use
  its international VPN to get access to necessary news and
  information, compliance will be required.
  
  
  
• When the company is told that all of its company data must be
  stored on a cloud server located in China accessible to the
  Chinese government, compliance will be required.
  
  
  
• When the Chinese government/military arrives at the door and
  tells the foreign company that the PRC Cybersecurity Law mandates
  that it turn over its source code and other confidential
  information, compliance will be required.

This law was passed as the US-China trade talks were being negotiated,
and we now know that the Chinese were making agreements that they had
no intention of committing to. As we've been reporting, the Chinese
reneged on all the agreements just before the final agreement was to
be signed, apparently expecting that political pressures in the US
would force Trump to accept the changes. This follows a decades-old
pattern by the Chinese (and North Koreans) of making agreements and
then ignoring their obligations, while demanding that others
scrupulously meet their commitments, as a standard pattern. Passing
the new Foreign Investment Law is part of the strategy of subterfuge
this time.

The fact that Trump is standing up to the Chinese, and that Trump is
receiving a lot of support from the international community and from
Democrats, is apparently quite a shock to the CCP, since it
means that the CCP's entire negotiating strategy has collapsed.

A G-20 meeting is scheduled for Osaka on June 28-29, and Trump
and Xi Jinping are supposed to meet at that time. Unless some
surprise breakthrough occurs in the US-China trade talks,
that meeting probably will not be held.

On Saturday, China's foreign minister Wang Yi spoke to US secretary of
state Mike Pompeo on the phone. The purpose of the phone call was to
put further political pressure on the US to back down in the trade
talks. The media is reported Wang's statements as a "veiled threat."

China's readout of the call is on the Foreign Ministry web site. The
following is a machine translation:

Quote: Wang Yi phone call with Mike Pompeo (translation)

"On May 18, 2019, State Councilor and Foreign Minister Wang Yiying
made a phone call with US Secretary of State Pompeo.

Wang Yi said that the US has taken words and deeds that harm
China's interests in various aspects in recent times, including
suppressing the normal operation of Chinese enterprises through
political means. The Chinese side is firmly opposed to this. We
urge the US side not to go too far. We should change our course as
soon as possible to avoid further damage to Sino-US
relations. History and reality show that China and the United
States are two big countries. If they are both good and bad,
cooperation is the only correct choice for both sides. The two
sides should, in accordance with the direction set by the two
heads of state, manage differences on the basis of mutual respect,
expand cooperation on the basis of mutual benefit, and jointly
promote Sino-US relations based on coordination, cooperation and
stability.

Wang Yi pointed out that China has always advocated and is willing
to resolve economic and trade differences through negotiations and
negotiations, but the negotiations should be equal. In any
negotiation, China must safeguard the legitimate interests of the
country, respond to the general voice of the people, and defend
the basic norms of international relations.

Wang Yi emphasized that China has shown its position of resolute
opposition to the recent negative behaviors of the US-related
Taiwan. We urge the US to abide by the one-China principle and the
three Sino-US joint communiques and carefully handle the
Taiwan-related issues.

The two sides also exchanged views on relevant international and
regional issues. Pompeo reported on the US's views on the latest
developments in the Iranian situation. Wang Yi emphasized that
China, as a permanent member of the UN Security Council, is
committed to denuclearization and peace and stability in the
Middle East. We hope that all parties will exercise restraint and
act with caution and avoid escalating tensions. Wang Yi reiterated
his principled stand against the "long arm jurisdiction" of the
United States."

The call came several days after Trump signed an executive order
that could block Huawei doing business with American companies.

Both China and the US are becoming more belligerent in tit-for-tat
escalations. China has absolutely no intention of agreeing to a fair
US-China trade deal, and the terms of the Foreign Investment law show
what that means. China will not pull back, because it's bent on a war
of revenge against Japan and a war of annexation against Taiwan, and
Trump is not going to pull back because doing so would be appeasement,
and would do no good anyway.

----- Sources:

-- China foreign investment law: Bill aims to ease global concerns
https://www.bbc.com/news/business-47578883
(BBC, 15-Mar-2019)

-- New China Foreign Investment Law: Not Good News
https://www.chinalawblog.com/2019/04/new...-news.html
(China Law Blog, 23-Apr-2019)

-- China’s Wang Tells Pompeo U.S. Must Negotiate on Equal Basis
https://www.bloomberg.com/news/articles/...e-by-phone
(Bloomberg, 18-May-2015)

-- Wang Yi phone call with Mike Pompeo (translation)
https://www.fmprc.gov.cn/web/wjbzhd/t1664649.shtml
(China's Foreign Ministry, translation in article, 18-May-2019)