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Third largest trade economy

发布时间:2018-02-14
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1. Introduction

After China joined WTO in 2001, many companies want to invest in China resulted in China has became the third largest trade economy in the world. Many companies want to invest China for market expansion. Due to the unlimited right of host countries to control the entry of FDI, it is important to know the legal environment of China and relevant law and policy. This essay will aim to examine legal environment of China and the regulation both regulate and encourage foreign investors.

2. Chinese Legal Environment

According to Remfry & Sagar (n.d.),” In order to direct foreign investment into certain priority industry sectors, while restricting or prohibiting investment in others, Chinese law broadly classifies all foreign investment projects into one of the following four categories: prohibited projects, restricted projects, encouraged projects and permitted projects”. Moreover, it is not enough only examine the Chinese laws related to FDI, investors but also need to know general laws of P.R.China, for example Labour law and tax law.

3. Regulation encourage foreign investments

In accordance with general provisions article 4 of order of the president of the people's republic of China the enterprise income tax rate shall be 25%. However, if the enterprises fulfil some circumstances under the Chapter IV preferential tax treatments, they can granted preferential income tax, for example, the new-tech enterprises which are necessary to be supported by the state can reduced tax rate of 15% and the incomes from projects of agriculture, forestry, husbandry and fishery may be exempted or reduced. Regional free zones of china such as Shenzhen, Xiamen has some beneficial policy for foreign investment, for example, any enterprise with foreign investment of a production for a period of not less than ten years in the free zones, the income tax exempted in the first and second yeas and allowed a 50% reduction in the third to fifth years.

Moreover, there are some policies such as Catalogue of Encouraged Foreign Investment Industries and Catalogue of Prohibited Foreign Investment Industries in order to states industries which are encouraged or prohibited by the state. However, aerospace industry is encouraged by state.

Chinese government encourage foreign investor protect the environment in China and granted benefits for example the incomes may be deduced or exempted which is incurred from the projects of environmental protection, energy and water saving, which meet the relevant requirements) of The Enterprise income tax law of P.R.china.

In order to make sure the Chinese labour's right, Foreign Investors should allow the Labour law of P.R.China and other relevant policies and regulation of the place which is run the business. There is some policies benefit the foreign investors. For example, according to Enterprise income tax law of People's Republic of China, the wages paid to the disabled employees or other employees whom the state encourages to hire may be additionally calculated and deducted.

4. Regulation restrict foreign investments

There are many restrictions for accession in most countries including China. Detailed Rules for the implementation of the law of PRC on Sino-foreign contractual joint ventures states application for the establishment of contractual Joint Ventures shall not be approval on any one of the following conditions, namely causing pollution on environment in Article 9. Article 18 also demonstrates that in a contractual Joint venture that is accorded by law the status of a Chinese legal person, the foreign party's investment shall generally be no less than 25% of the registered capital.

In China, the expropriation has significant impact on foreign investors, particularly in land. Annex 13 is about expropriation in The Free Trade Agreement between the government of PRC and the Government of New Zealand, points in order to constitute indirect expropriation, the state's deprivation of the investor's property must be either severe or for an indefinite period and disproportionate to the public purpose. The Law of Land Administration of the PRC is the main law to regulate the ownership and right of use of land and relevant issues. For instance, most foreign companies joint venture with local partner and obtain the right of use land from Chinese party. A common problem is Chinese partner only holds the allocated land use rights for the land (all the land owned by state).

On the other hand, in order to protect environment of China, the Environment Protection Law of P.R.China stated that units that cause environmental pollution and other public hazards shall establish a responsibility system for environmental protection and a ban shall be imposed on the importation of any technology or facility that fails to meet the requirements of P.R.China in Article 24 and 30. According to the research called Silent Majority engaged by Greenpeace (2009a), there were eight foreign invested multinational companies included Nestle and Shell (however, shell declared the TRI including 49 kinds pollution caused by one of factories in United States on time (Greenpeace, 2009b).) breach system environmental information opening of enterprises of P.R.China, those companies were not disclosure the pollution information before the deadline.

On the other hand, for instance, Labour law of P.R.China regulates the responsibility of company for their employees, Such as working hours, wage and safety and health care. Labour department of Guangdong province states that McDonald breach the part-time job minimum wage policy of Guangdong province by following points (Wen et al, 2009). First, the part-time job minimum is 7.5 RMB yuan one hour, McDonald however just pay 4 RMB yuan one hour. Secondly, the maximum working hours are five hours one day, but the part-time staff works 8 hours a day.

5. Conclusion

Summarised, it can be seen, there are many policies and laws encourage or prohibit foreign investment inward China. It also shows that Chinese legal system has many restrictions to protect human right and environment which are the controversies in the world.

6. References

Greenpeace (2009a) Silent Majority pp15 (In Chinese) (Online) Retrieved from: http://www.greenpeace.org/raw/content/china/zh/press/reports/silent-majority-rpt.pdf [Assessed on 11 November 2009]

Greenpeace (2009b) Silent Majority pp 19 (In Chinese) (Online) Retrieved from: http://www.greenpeace.org/raw/content/china/zh/press/reports/silent-majority-rpt.pdf [Assessed on 11 November 2009]

Remfry & Sagar (n.d.) Law Relating to Foreign Investment-China (Online) Retrieved from: http://remfry.cn/en/laws4.htm [Assessed on 15 November 2009]

Wen,J et al (2009) Guangdong labour supervision department were involved in investigating incidents of labour violations of McDonald (In Chinese) (Online) Retrieved from: http://www.chinanews.com.cn/cj/cyzh/news/2007/03-29/902874.shtml [Assessed on 13 November 2009]

1. Introduction

Due to WTO system and helpful agreements, Developing countries have more opportunities for access global market than before. However, third-world nations have never had a decisive role in this system will resulted in some problems. This essay will seek both opportunities and challenges facing developing countries with the construct with WTO.

2. International Trade Law and Developing Countries.

International Trade Law is distinguished from international economic law. It is not only contains WTO law, but also made up of international monetary system. WTO as the main component had helped developing countries to gain more accessions to international market, and also reducing discriminating in the international trade, namely MFN Agreement. Developing countries are the group countries which are measured by WTO via lower GDP and other factors.

3. Opportunities for Developing countries

WTO has many agreements or policies to help international trade by some methods, such as fair trade and relieve trade barrier. In particular it benefits developing countries.

3.1 Enable developing countries access to modern technology

According to TRIPS, developing countries which are think technology transfer as part of the bargain in which they have agreed to protect intellectual property rights. The TRIPS Agreement includes a number of provisions on this. Article 66.2, for example, it requires developed countries governments to provide incentives for their companies to transfer technology to least-developed countries. WTO also established Working Group on Transfer of Technology for increasing the flow of technology from developed countries to developing countries, and examining the relationship between them in transfer technology and trade (WTO, 2009).

3.2 Rapid growth of import and export of developing countries

Under WTO a Most-favoured-nation (MFN) agreement, member countries cannot discriminate between their trade partners. It helps free trade as well. There are some benefit from MFN, namely MFN restrains domestic special interests from obtaining protectionist measures and lower export, import tariffs called The Most-favoured-nation Rate of Duty for both sides. For example, the export of Philippine was 2billion USD and increased 18 times (38billion USD) in 2000 (Liu, 2001). Another is Least Developed Countries (LDC) merchandise exports reached 57.8billion USD, up 11.9billion USD from 2003 (ECA, 2009). Furthermore, SCM Agreementalso helps developing to improve their competitive advantage. For instance, the per capita is lower than 1000 USD member countries can not prohibited in export subsidies. At last, fair trade is another instance.

3.3 Enable developing countries to obtain debt relief and development assistance

WTO not only benefits developing countries by helping them expand global market, but also creating better economic environment for them. Development assistance and debt relief are the two main methods. According to WTO Reference Centre in China (n.d.), Japan and China will relief billion dollars debt for Iraq. Moreover, WTO (2000) also claims the government of the Federal Republic of Germany signed an arrangement with the WTO to contribute DM 1 million to the WTO Global Trust Fund in 25 January 2000 which to be used to undertake Trade Policy Reviews for developing countries.

4. Challenges for Developing countries

As what discussed above, WTO and Globalisation have help developing countries develop economy in many ways. However, as the same time, there are some drawbacks suffered by developing countries, such as Environmental pollution and traditional industry failed in troublesome market.

4.1 Awkward position for whole economy of developing countries

The competitive advantages of developing countries usually are lower labour and material cost. Those companies depend on low price to attract customers. On the other hand, WTO and Developed countries set up some trade barriers to restrict developing countries export their goods to developed countries, such as quotas and ETBs. Obviously, developing countries suffered anti-dumping a lot, particularly the industrial countries, namely China, India. BBC Monitoring International Report state the European Union announced in 29 March 2002 in Brussels that it would resume anti-dumping duty against Chinese Television after several Chinese companies called back their promises on minimum price. Then, European Union made decision to re-impose a 44.6 percent anti-dumping tariff (China Daily, 2006). Another case is EU made anti-dumping tariff to Vietnam footwear from 4.2% to 16.8% resulted in massive job losses in Vietnam from 2006 Commercial Counsel Report on Vietnam(2007).

4.2 Environmental pollution and Climate change

Since China joint WTO in 2001, Chinese economy experienced sharply increasing, especially export. China is the second ranking export country all around the world. However, research from Greenpeace (2009) states that the main special economic zone Zhujiang Delta has suffered serious water pollution resulted from the factories nearby, it leads to polluted seafood and water. Moreover, it has happened in world-wide-range. According to Kirchbach (2001), WTO rules clearly permit countries to put up trade barriers for environmental reasons and of Environmental 4917 products in world trade examined by International Trade Forum, only 1,171 do not face any ETBs.

4.3 Domestic industry risky in fierce competition

One main demerit is the companies of developed counties have significant negative impact on the local companies of developing countries. WTO helps nations relieve the trade barriers and encourage international trade by trade liberalization, however, some foreign invested companies enter to a new market by acquisition. For instance, Chinese subsidiary of SC Johnson & Son, Inc. acquisitioned the most famous brand MAXAM of Shanghai Jahwa in 1991 which is a company was leading cosmetic industry in China. One of the famous brands called MAXAM which occupied more than 20% market share in Chinese market, SC Johnson & Son, Inc. promised investment to promote the brand. Eventually, SC Johnson & Son, Inc. did not do that, and made Meijiajing disappeared in Chinese market in order to promoting theirs own brand (Chen, 2009). Another example is Philippine joint WTO in 1995 and the tariff is 26% at that time. In 2001, it decreased by 16% to 10% resulted in many industrial products enter to Philippine market. It also had a negative impact on Philippine industry, many companies bankrupted. Then, Philippine government increased the tariff for protect domestic industry (Liu, 2001).

5. Conclusion

To sum up, there are many chances for developing countries to participate and anticipate within the legal system of WTO. Those global institutions help developing countries to develop technology and economic. However, WTO can not ignore the negative issues for developing countries under the system.

6. Reference

China Daily (2006) EU Anti-dumping Duty Unlikely to Hurt China's TV Makers (Online) Retrieved from: http://www.china.org.cn/english/BAT/164423.htm [Assessed on 15 November 2009]

Chen,R. (2009) MAXAM half a century of rebirth (In Chinese) (Online) Retrieved from: http://money.163.com/09/0823/18/5HE0SOJ100253JP6.html [Assessed 15 November 2009]

ECA (2009) Facts about Least Developed Countries (Online) Retrieved from: http://www.uneca.org/eca_resources/news/200706unctad_launch-FACTS-aboutLDCs.htm [Assessed on 15 November 2009]

European Union Economic and Commercial Counsellors (2007) 2006 Commercial Counsellors Report on Vietnam PP25 (Online) Retrieved from: http://www.delvnm.ec.europa.eu/eu_vn_relations/trade_economic/Greenbook_06.pdf [Assessed on 11 November 2009]

Greenpeace (2009) Zhujiang industrial water pollution research (In Chinese) (Online) Retrieved from: http://www.greenpeace.org/raw/content/china/zh/press/reports/zj-rpt.pdf [Assessed on 11 November 2009]

Kirchbach, F. (2001) Environmental Trade Barriers: Who Wins, Who Loses, What's the score? (Online) Retrieved from: http://www.tradeforum.org/news/fullstory.php/aid/278/Environmental_Trade_Barriers:_Who_Wins,_Who_Loses,_What%E2%80%99s_the_Score_.html [Assessed on 12 November 2009]

Liu,X. (2001) Southeast Asia: According to the situation of adjustment policies (In Chinese) (Online) Retrieved from: http://www.people.com.cn/GB/paper53/3908/468319.html [Assessed on 12 November 2009]

WTO Reference Center in China (n.d.) China and Japan agree to a substantial reduction of Iraq debt (In Chinese) (Online) Retrieved from: http://www.wtoinfo.net.cn/cgi-bin/zbld_read.php?id=9003&flag=2 [Assessed 14 November 2009]

WTO (2000) Germany contributes to WTO's global trust fund (Online) Retrieved from: http://www.wto.org/english/news_e/pres00_e/pr162_e.htm [Assessed on 13 November 2009]

WTO (2009) Working Group on Trade and Transfer of Technology (Online) Retrieved from: http://www.wto.org/english/tratop_e/devel_e/dev_wkgp_trade_transfer_technology_e.htm#top [Assessed on 14 November 2009]


  1. Article 28 of Enterprise Income Tax Law of the People's Republic of China
  2. Article 27 (1) of Enterprise Income Tax Law of the People's Republic of China
  3. Article 8 of IncomeTaxLawofthePeople'sRepublicofChinaforEnterpriseswithForeignInvestmentandForeignEnterprises
  4. Article 18 (11) of Catalogue of Encouraged Foreign Investment Industries
  5. Article 27 (3) of Enterprise Income Tax Law of the People's Republic of China
  6. Article 30 (2) of Enterprise Income Tax Law of the People's Republic of China
  7. Article 3 of Annex 13 of Expropriation of Free Trade Agreement Between the Government of the People's Republic of China and the Government of New Zealand
  8. Article 20 of breach system environmental information opening of enterprises of People's Republic of China
  9. Guangdong part-time employee hour minimum wage standard
  10. Article 66 is encouraging transfer technology from developed countries members to the Least-Developed Country member.
  11. SCE Agreement is Agreement on Subsidies and Countervailing Measures
  12. Transition Rules and Special and Differential Treatment
  13. EBTs is environmental-related trade barriers

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