On March 15, the Second Session of the 13th National People's Congress voted to adopt the Foreign Investment Law of the People's Republic of China. Xinhua News Agency has been authorized today to publish the full text of the law.

This is China’s first unified foundational law in the field of foreign investment.

In the early days of reform and opening-up, the Second Session of the Fifth National People’s Congress, held in 1979, adopted the Law on Sino-Foreign Joint Ventures, ushering in a new phase in which China safeguarded its opening-up through legislation. Subsequently, the Law on Wholly Foreign-Owned Enterprises and the Law on Sino-Foreign Cooperative Joint Ventures were enacted, collectively forming the “Three Laws on Foreign Investment” and laying the legal foundation for China’s absorption of foreign investment.

Once the new law takes effect, the “Three Laws on Foreign Investment” enacted during the early days of reform and opening-up will officially be phased out.

The Foreign Investment Law features five key highlights:

1. Implementing a pre-establishment national treatment plus negative list management system for foreign investment;

2. It upholds the principle of equal treatment for domestic and foreign investment;

3. Protects intellectual property rights;

4. Establishing and improving a service system for foreign investment;

5. Establishing a foreign investment information reporting system.

The enactment of the Foreign Investment Law is of great significance:

It is a key measure to implement the Central Committee’s decisions and plans to expand opening-up and promote foreign investment,

It is an objective requirement for the legal system governing foreign investment in China to keep pace with the times and continue to improve;

and an objective requirement for promoting the healthy development of the socialist market economy and achieving high-quality economic development.

The Foreign Investment Law will take effect on January 1, 2020.

Following the promulgation of the Foreign Investment Law, some domestic enterprises may wonder: How does this law—which appears to target foreign enterprises—relate to domestic enterprises? Since this “Investment Law” isn’t intended for us, does it mean we should prepare in advance for foreign enterprises to carve up the domestic market?

In fact, based on the logical principle that “everything has two sides,” while the entry of foreign-invested enterprises will indeed pose a significant impact on some enterprises in sectors outside the “negative list” to a certain extent, the state’s vigorous promotion of foreign investment must necessarily have its own rationale and value.

During this year’s Two Sessions, the Hubei delegation stated during the review of the “Draft Foreign Investment Law” that “in sectors outside the negative list for foreign investment access, new competition will emerge, which will bring both pressure and challenges as well as opportunities to relevant domestic sectors and industries.”

Domestic enterprises have undoubtedly already felt this so-called pressure and challenge. But where exactly do their opportunities lie?

Impact: A "Subtle" Presence

From an external perspective, the entry of foreign-invested enterprises can optimize the regional talent structure and promote exchanges between domestic and foreign-invested enterprises!

Human Capital

The quality of foreign-invested enterprises entering China has significantly improved.High-quality foreign enterprises are characterized by advanced development levels, strong financial and technological capabilities, and standardized management and operations. The working conditions and benefits they offer are superior to those of typical small and medium-sized foreign enterprises, resulting in a greater positive impact on workers’ human capital compared to the latter. From an industrial structure perspective, high-tech industries among foreign enterprises exhibit a higher concentration of technological and knowledge-based elements than typical labor-intensive industries, leading to stronger spillover effects on human capital and more effectively promoting the development of regional human capital.

Exchange and Cooperation

To a large extent, the introduction of foreign-invested enterprises can promote exchange and cooperation between domestic and foreign-invested enterprises.For domestic industries with supporting relationships, increasing the local procurement of raw materials and intermediate products by foreign-invested enterprises can facilitate effective industrial cooperation and division of labor between domestic and foreign enterprises, driving the development of industrial clusters. This also enables domestic enterprises to directly learn advanced production technologies and management experience from foreign enterprises through this division of labor. Additionally , for domestic enterprises engaged in foreign-related business, the state’s openness and attraction of foreign-invested enterprises undoubtedly provide further impetus and support for their operations.

Competitors are the best learning models

Internally, the entry of foreign-invested enterprises serves as a catalyst for the optimization of domestic enterprises.

In the past, regarding rumors of a “wave of foreign enterprises pulling out,” there was an interpretation that while China’s advantages in labor and operational costs may indeed have diminished compared to the past, this shift has led to the exit of some low-end foreign manufacturing enterprises, while attracting more high-end enterprises to enter China.

This interpretation implies that domestic enterprises are facing a new wave of stronger competitors; in other words, the bar for what enterprises should strive to achieve has been raised significantly. Often, what truly makes you strong is not the market, not the customers, nor even yourself, but the predators who target you. Competitors are not merely obstacles; they are mirrors that help you recognize your own strengths and weaknesses, thereby enabling you to further refine and improve yourself.

Therefore, whether dealing with domestic or foreign companies, never view your opponents as adversaries; instead, use them as benchmarks for your own development. As Bill Gates emphasized: analyze what you can learn from your competitors and take care to avoid repeating their mistakes.

Moreover, a market without competition causes companies to lose their sense of urgency; the stronger the opponent, the more they can stimulate one’s own potential. Adopting others’ strengths to address one’s own weaknesses, and then refining and improving upon them to make the company’s products more competitive, is the foundation for long-term success.

But how can we transform competing companies from “opponents” into our own “benchmarks,” thereby learning from and emulating their strengths?

Imitation is the best starting point for learning

Generally, when making cross-border investments, companies conduct comprehensive research and analysis of the target market and business operations. The most commonly used method is the well-known PESTEL analysis model, an effective tool for analyzing the macroenvironment. Each letter corresponds to a specific analytical factor: Political, Economic, Social, Technological,Environmental, and Legal factors. Its value lies in integrating these elements of the target market to analyze the industry’s growth drivers and prospects under these conditions. Companies can then objectively assess how these external factors will assist or impact their operations based on their own business needs and strategic direction, thereby formulating the most suitable business plan for the target market.

This analytical model is equally applicable to domestic enterprises analyzing the current market. Regularly monitoring regional economic indices across various dimensions, organizing, and analyzing them will help enterprises understand the market, broaden their perspective, break free from fixed mindsets, and examine the entire external macro-environment from a higher and more comprehensive angle.Maintaining constant intelligence analysis of the market and a clear understanding of the company’s position and competitiveness within the broader market and industry is an essential requirement for every business leader. Optimizing business strategies by studying competitors —maintaining advantages, identifying weaknesses, adjusting tactics, and securing a firm foothold in the market—is the golden rule of corporate development.

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