In the late 1970′s the PRC began developing its legal system which in turn would encourage foreign investment. China has turned its attention in acquiring an active role in the international business environment since 1979. Since then China has spent many years actively modernising its legal structure, culminating in its successful entry to the World Trade Organisation in 2001. The scale of foreign investment has increased since then. The Chinese economy has experienced growth since then and with the joining of World Trade Organization (WTO) in 2001 there has been further expansion of the economy. It has resulted in relaxation of trade barriers and liberalization of the Company laws. The Chinese economy has shifted from centrally controlled system of the government to a market oriented economy favouring foreign investments.
China has benefitted from the increased access of the foreign goods by way of export into the foreign market. The export of China has increased to US $ 762.7 billion in 2005. It has become the second largest recipient of Foreign Direct Investment (FDI) after United State of America.
The legal system has thus been geared to meet the changes in the Chinese economy. There has been a change in the Company Law of the People’s Republic of China (PRC) of 1994. Previously the foreign investment in China took the three traditional forms namely Chinese- Foreign Equity Joint Venture, Chinese- Foreign Contractual Venture and Wholly Owned Foreign Enterprises (WOFE). One of the initial major steps was the promulgation of the Law of the PRC on Chinese-Foreign Equity Joint Ventures (the “PRC Joint Venture Law”) in 1979 which governed foreign investment. As a direct result of this first Sino-foreign joint venture was established in 1980.
The management of these three types of Enterprises was plagued with inflexibility as these were governed by separate specialized legislations. The foreign investor can now open a Private Limited Liability Company and Public Companies issuing shares. This is an important step towards a friendly foreign investment.