China provides equal legal protection to foreign investors

Top court calls for judicial efforts to create business-friendly environment

China's courts have strengthened protections for foreign investors by efficiently resolving disputes, a move aimed at fostering high-level openness and creating a favorable business environment, the country's top court said Wednesday.

The Supreme People's Court highlighted five recent cases involving foreign investors, showcasing efforts to provide equal protection under the law to domestic and international litigants and to offer them comprehensive legal services.

The court emphasized the importance of accurately implementing laws such as the Foreign Investment Law, the Company Law and the Partnership Law to safeguard the rights of foreign enterprises and streamline dispute resolution.

"These efforts bolster foreign investors' confidence in the Chinese market, encouraging further investment," the court said in a statement.

In one notable case, the court illustrated how Chinese judicial authorities regulated the conduct of senior executives and provided judicial relief for a foreign-invested company that had incurred financial losses.

In September 2013, a French enterprise and several other foreign investors established a trading company in Shanghai, appointing an individual identified as Jiang as its general manager.

Four years later, the company decided to renovate its offices and signed a contract with a construction company to carry out the work. However, another company ultimately took up the project and was paid more than 1.5 million yuan ($205,000).

The foreign-invested company later discovered that the construction company that did the work was operated by Jiang's spouse and that Jiang had privately signed a separate contract with it. The company filed a lawsuit against Jiang, alleging misappropriation of company assets.

The Shanghai No 2 Intermediate People's Court ruled in favor of the foreign-invested enterprise, affirming that all market entities in China, regardless of their origin, are protected under the Company Law. Jiang was ordered to pay the company 300,000 yuan in compensation.

According to the law, directors and senior executives of a company are prohibited from signing contracts or conducting transactions with another company without shareholder approval.

"When foreign investors establish companies in China, they typically rely on executives to manage their operations," the Supreme People's Court noted. "Under Chinese law, executives are required to act with loyalty and diligence, which serves as a vital legal safeguard for the legitimate rights and interests of foreign investors."

The court added that executives of foreign-invested enterprises are also subject to the same legal constraints as their counterparts in domestic companies, ensuring accountability. The ruling by the Shanghai court further promoted the orderly development of foreign-invested businesses.

Recognizing the critical role of foreign investors in advancing Chinese modernization, the top court highlighted the rapid growth of foreign-invested enterprises and investment projects in recent years.

It called on courts at all levels to maintain judicial efforts to create a more market-oriented, legalized and international investment environment, emphasizing the strict implementation of the Foreign Investment Law, which came into effect in January 2020.