New China law eases Kenyan firms’ entry

China has long been perceived as having a hostile foreign policy that disfavours foreign businesses operating in its jurisdiction. Historically, China had discouraged foreign trade during the Ming and Qing dynasties. During these periods ranging from the 14th century to early 1920s, China believed it was self-sufficient and therefore did not heavily depend on foreign trade as a source of national revenue. It is only in the 1970s that foreign trade increased.

Last year, China was on the brink of a trade war with the US due to alleged unfair trade practices by the Asian economic giant against foreign entities including a weaker enforcement of intellectual property rights.

A trade war is a conflict between two nations where one uses protectionist mechanisms against imports generated from the other. These mechanisms are largely regulatory and policies and include levying higher tariffs on imports from the other nation or using trade barriers. Trade barriers constitute regulations and laws that would make it difficult for the other nation to trade in the domestic market.

The US-China trade war resulted in threats to use protectionism and counter-threats on the same. For example US threatened to impose some tariffs while China threatened to impose retaliatory tariffs on some products. This would make it difficult for imports from either nation to compete effectively with other similar goods and services in the host country.

However China has now adopted a friendlier approach to foreign investment by allowing a proposed law that would seemingly amend provisions deemed to be hostile to foreign investors. These included requirement to almost forcibly transfer technology in exchange for market access. This policy made it easier for intellectual property rights to be unlawfully accessed and used.

The proposed law stipulates that Chinese government officials cannot misuse intellectual property disclosed to them or give that information to local Chinese firms.

Furthermore, there have been allegations of unfairness in Chinese government procurement opportunities and other trade practises. The planned law provides equal opportunities for foreign entities in licensing and participation in public tendering. Foreign businesses are protected from arbitrary expropriation except if the expropriation is for public interest.

Counterfeit and intellectual property theft has now been criminalised meaning that there is stronger enforcement.

Inasmuch as the proposed law, which will take effect in 2020, has been well received, experts argue that it doesn’t contain enforceable provisions, but is rather a statement of intent.

Nonetheless, this law is more investor friendly and it therefore means that China may attract more investors considering it is the largest retail market.

The new business environment may mean that Kenyan and African businesses especially those in manufacturing can consider expanding into China. Strengthened intellectual property policies and laws may mean that businesses in technology and innovation can also consider expanding into China.