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Ruling by Chinese Court May Put More Limitations on Foreign Investors

Image via Flickr by epSos.de

Foreign investors have always faced difficulties putting their money into China’s growing economy. According to Chinese law, foreign investors cannot participate in education, technology, media, finance, and a few other industries.

That has disappointed investors from outside of China. It has also disappointed some businesspersons within China.

Unfortunately, a recent ruling by a Chinese court has solidified the country’s laws even more. Now, potential investors will have an even harder time participating in industries that the government wants to control.

The lawsuit was originated in a 1995 deal by Nina Wang, who is thought to be the wealthiest women in Asia. Ms. Wang had the kind of mind that could have made her an excellent lawyer for Apple: she looked closely at the system and found loopholes that allowed her to use a Hong Kong company to control economic activities in a mainland China holding company.

A lawsuit filed 12 years ago finally reached the Supreme People’s Court last October. In the court’s judgment, Ms. Wang’s Hong Kong company had broken what Chinese laws attempted to prevent. Essentially, it means that foreign companies trying to enter China’s economy via contracts could face tougher scrutiny.

Ripple effects of the decision have even been felt by Wal-Mart, which tried to obtain a larger stake in Yihaodian, China’s biggest e-commerce company. The Ministry of Commerce stepped in to oversee the companies’ interactions, deciding that Wal-Mart could become majority shareholder but forbidding the American company from using a platform developed by Yihaodian.

In some ways, this is the kind of protectionism that one should expect from China. It doesn’t exactly have a history of opening its borders to foreigners. Depending on how closely China wants to interpret its business laws, though, it could shut out some of the foreign investors that the country needs to keep growing.

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