CBL Team’s Introduction
CBL’s examination of the Interpretation of the Supreme People’s Court of the PRC on the Foreign Investment Act is essential for investors navigating China’s investment landscape. The Interpretation provides instructions on how trial courts must ensure Chinese and foreign investors share equal legal protections under their investment agreements. Of note, it determines when agreements involving restricted foreign investment may be considered void on grounds of investment in a prohibited industry.

Interpretation of the Supreme People’s Court of the People’s Republic of China of the Foreign Investment Act

Interpretation of the Supreme People’s Court of the People’s Republic of China on the Foreign Investment Act, adopted by the Judicial Committee of the Supreme People’s Court during the 1787th session on December 16, 2019, is hereby issued and will take effect on January 1, 2020.

The Supreme People’s Court

December 26, 2019

Legal Interpretation No. 20 (2019〕)

The Supreme People’s Court

Interpretation of the Supreme People’s Court of the People’s Republic of China on the Foreign Investment Act

(Adopted by the Judicial Committee of the Supreme People’s Court during the 1787 session on December 16, 2019, is hereby issued and will take effect on January 1, 2020.)

The purpose of the following interpretations is to ensure the courts properly apply the Foreign Investment Act of the the People’s Republic of China to disputes arising from investment agreements between equal parties in light of judicial experience, and to provide equal protection for legal rights of investors whether Chinese or foreign, and to enable the rule of law create a business environment that ensures stability, fairness, and transparency.

Section 1 This Interpretation holds that an investment agreement means any agreement made by foreign investors, such as foreign natural persons, entities, or other organizations, that make investment in China, either directly or indirectly, including agreements relating to the formation of foreign owned entities, share purchase agreements, equity purchase agreements, other assignment agreements relating to shares or rights, and agreements relating to newly created projects.

This Interpretation is applicable to any disputes arising from the acquisition of an interest by means of transfer, spousal partition of community property, and business merger, or business division among foreign investors.

Section 2 The court shall deny a party’s petition to void an investment agreement on grounds it lacks approval and registration from the appropriate jurisdictional agency, provided such agreement does not fall within the exception list category established pursuant to Section 4 of the Foreign investment Act.

Under the above rule, the investment agreement shall be deemed lawful and valid if the it was signed before the effective date of the Foreign Investment Act and the court has still not issued an opinion on the validity of the investment agreement after the Act already took effect.

Section 3 The court shall uphold a party’s claim that an investment agreement is void on grounds that the foreign investor enters an industry prohibited by the exception list.

Section 4 The court shall uphold a party’s claim that an investment agreement is invalid on grounds the foreign investors violated the exception list by entering sectors restricted by the exception list.

The court shall uphold a party’s claim the investment agreement is valid under the previous Section if the parties has taken steps to comply with the conditions set forth in the exception list prior to the date of the ruling.

Section 5 The court shall uphold a party’s claim that the investment agreement is valid, if prior to the date of the ruling the foreign investor’s investment is no longer one that is prohibited or restricted by the exception list.

Section 6 The court should apply and refer to this Interpretation when hearing investment dispute cases in mainland China by investors from the Special Administrative Regions of Hong Kong and Macao, as well as overseas Chinese citizens and investors from Taiwan.

Section 7 The Interpretations shall take effect on January 1, 2020.

The Interpretation shall take precedence if this Court issues a legal interpretation that is conflicting with the Interpretation before its effective date.