China’s New Foreign Investment Law Review: Clean Energy Impact
Policy Background
China’s Foreign Investment Law (FIL), which came into effect on January 1, 2020, represents the most significant reform of China’s foreign investment regulatory framework in over four decades. The law replaced the previous patchwork of three separate regulations — the Law on Sino-Foreign Equity Joint Ventures, the Law on Wholly Foreign-Owned Enterprises, and the Law on Sino-Foreign Cooperative Joint Ventures — that had governed foreign investment since the late 1970s and early 1980s. With 42 articles organized across six chapters, the FIL established a unified legal framework for foreign investment in China for the first time.
The FIL’s enactment was accompanied by several important ancillary policy developments. In December 2019, the State Council issued the “Implementation Regulations for the Foreign Investment Law” (368 articles providing detailed operational guidance). Concurrently, the NDRC and Ministry of Commerce published the 2019 edition of the “Special Administrative Measures (Negative List) for Foreign Investment Access,” which reduced the number of restricted sectors from 48 to 40. Subsequent annual updates — the 2020 edition (33 restricted sectors), 2021 edition (31 restricted sectors), and 2023 edition (28 restricted sectors) — have progressively liberalized market access for foreign investors, including in several clean energy-related areas.
For clean energy companies, the FIL is particularly consequential. China’s clean energy sector has traditionally been dominated by state-owned enterprises and domestic private companies, with foreign firms facing significant market access barriers in areas such as renewable energy project development, energy storage, and grid interconnection. The FIL’s provisions on national treatment, negative list management, and government procurement were intended to level the playing field — though implementation has been uneven in practice.
Key Provisions of the Foreign Investment Law
1. National Treatment Principle (Article 4)
Article 4 of the FIL establishes that “foreign investors shall enjoy national treatment” — meaning foreign-invested enterprises (FIEs) shall be treated no less favorably than domestic Chinese enterprises, except in sectors specifically listed on the negative list. This provision is the cornerstone of the FIL’s legal framework and has direct relevance to clean energy companies. Previously, many local governments in China imposed informal restrictions on foreign participation in renewable energy projects — requiring FIEs to partner with domestic companies, limiting FIE ownership stakes, or imposing local content requirements. The national treatment principle, if fully implemented, would eliminate these discriminatory practices.
However, implementation challenges remain significant. A 2023 survey by the American Chamber of Commerce in China (AmCham China) found that 42% of member companies reported no improvement in market access since the FIL’s enactment, and 35% reported that local government policies still discriminated against foreign-invested enterprises in practice. In the clean energy sector specifically, foreign developers report that grid connection applications for FIE-owned renewable projects are processed 20–30% slower than equivalent applications from domestic companies, and that approval rates for FIE projects are approximately 15% lower in provincial-level renewable energy tenders.
2. Negative List Management System (Article 5)
The FIL institutionalizes the “negative list” approach, whereby foreign investment is prohibited or restricted only in sectors explicitly listed on the negative list. Sectors not on the negative list are presumed open to foreign investment on a national treatment basis. For clean energy, the critical evolution has been the progressive removal of restrictions:
2019 Negative List (48 restricted sectors): Restricted foreign participation in nuclear power plant construction (majority Chinese ownership required), restricted investment in conventional energy exploration (limited to JV or cooperative forms), and prohibited foreign investment in certain critical mineral extraction (including rare earths essential for clean energy technologies).
2020 Negative List (33 restricted sectors): Removed restrictions on foreign investment in new energy vehicle (NEV) manufacturing — foreign automakers were no longer required to form JVs for NEV production. This provision catalyzed Tesla’s Shanghai Gigafactory expansion and attracted new investment from BMW, Volkswagen, and Hyundai in Chinese EV production.
2021 Negative List (31 restricted sectors): Removed restrictions on foreign investment in carbon capture, utilization, and storage (CCUS) technology development — a move that opened opportunities for foreign CCUS companies like Shell, Schlumberger, and Aker Solutions to provide technology services to Chinese power and industrial companies.
2023 Negative List (28 restricted sectors): Removed restrictions on foreign investment in energy storage manufacturing and smart grid equipment — areas previously requiring Chinese majority ownership. This provision, effective January 2024, allows foreign companies to establish wholly-owned subsidiaries in China for battery storage, power electronics, and grid management system manufacturing.
3. Government Procurement and Policy Transparency (Articles 16–18)
The FIL includes specific provisions requiring equal treatment of FIEs in government procurement and mandating transparency in policy-making that affects foreign investors. Article 16 states that FIEs shall enjoy equal treatment when participating in government procurement activities, while Articles 17 and 18 require government agencies to publish policies affecting foreign investment in a timely and transparent manner, with a 30-day comment period for draft regulations.
These provisions are particularly relevant for clean energy companies because local governments in China are major procurers of clean energy equipment and services — from solar panels for poverty alleviation programs to electric buses for public transit to energy storage systems for grid-level applications. Under the FIL, FIEs should be able to compete for these procurement contracts on equal terms with domestic companies. In practice, the European Chamber of Commerce in China reported in 2023 that only 18% of surveyed clean energy companies had successfully won government procurement contracts in China, compared to 47% for domestic firms — indicating that implementation gaps persist despite the legal framework.
4. Intellectual Property Protection (Articles 22–23)
The FIL strengthens intellectual property protection for foreign investors in several ways. Article 22 prohibits forced technology transfer — providing a legal basis for foreign companies to retain proprietary technology in their China operations. Article 23 strengthens trade secret protection and establishes legal remedies for IP infringement. These provisions address one of the most persistent concerns of foreign clean energy companies operating in China.
For clean energy technology companies — particularly those in advanced battery chemistry, hydrogen electrolysis, solar cell efficiency, and wind turbine blade design — the forced technology transfer prohibition is significant. In the decade before the FIL, multiple foreign clean energy companies reported informal pressure to transfer proprietary technology to Chinese partners as a condition of market access. The FIL provides a legal framework to resist such pressure, though enforcement against local government practices — as opposed to formal policy — has been limited in practice. A 2022 study by the US Chamber of Commerce found that 37% of foreign clean energy companies still reported concerns about technology protection in China, down from 62% in 2018 but still at elevated levels.
Sector-Specific Impact on Clean Energy
Solar Energy
The FIL’s liberalization of manufacturing restrictions has had a mixed impact on the solar sector. China’s solar manufacturing industry — dominated by LONGi Green Energy (65 GW of module shipments in 2023), JinkoSolar (60 GW), Trina Solar (55 GW), and JA Solar (50 GW) — has achieved such scale and cost advantages that foreign manufacturing in China is increasingly uneconomical. However, the FIL has facilitated foreign investment in solar project development services, monitoring technology, and O&M software. Companies like Enphase Energy (microinverters) and SolarEdge (power optimizers) have established Chinese subsidiaries under the FIL framework, focusing on project-level technology solutions rather than module manufacturing.
The removal of restrictions on energy storage manufacturing in the 2023 Negative List has opened a new opportunity. Fluence (a Siemens-AES joint venture) and Tesla (with its Megapack product) are exploring wholly-owned energy storage manufacturing in China for both domestic and export markets. Tesla’s Megapack factory in Shanghai, announced in April 2023 with a planned capacity of 10,000 units per year (40 GWh), is being structured as a wholly-owned subsidiary under the FIL framework — a structure that would not have been possible before the 2023 Negative List changes.
Wind Energy
China’s wind energy market continues to be dominated by domestic manufacturers — Goldwind, Envision Energy, Mingyang Smart Energy, and Shanghai Electric collectively control over 70% of the domestic market. The FIL has not fundamentally altered this competitive landscape, as no explicit legal barriers prevented foreign wind turbine OEMs from competing. The challenge for foreign wind companies (Vestas, Siemens Gamesa, GE Renewable Energy) has been structural — Chinese manufacturers benefit from lower labor costs (30–40% lower than European competitors), government procurement preferences, and supply chain integration.
Energy Storage
The energy storage sector has been the clean energy segment most positively impacted by the FIL’s liberalization. The removal of JV requirements for energy storage manufacturing in 2023 has attracted a range of foreign companies. In addition to Tesla’s Megapack facility, Swedish battery manufacturer Northvolt is reportedly evaluating a wholly-owned subsidiary for battery production in China, and German energy storage company Sonnen (a Shell subsidiary) established a wholly-owned Chinese subsidiary in 2023 focused on residential battery systems. The FIL framework has also facilitated partnerships between foreign technology companies and Chinese battery manufacturers — including the Samsung SDI-BYD partnership for battery management system development in 2022.
Electric Vehicles and Charging Infrastructure
The 2020 Negative List’s removal of JV requirements for NEV manufacturing has been transformative. Tesla’s Shanghai Gigafactory — which produced 947,000 vehicles in 2023, accounting for over 50% of Tesla’s global production — was the first wholly foreign-owned vehicle manufacturing facility in China’s history. This precedent has been followed by other foreign automakers: BMW’s wholly-owned Chinese subsidiary for MINI EV production (announced 2022, production began 2024), and Volkswagen’s 100% ownership of its Anhui EV facility (restructured from a JV in 2023). For EV charging infrastructure — a sector closely linked to clean energy — the FIL provides a more favorable regulatory environment. Foreign charging station operators like ChargePoint and EVgo have established wholly-owned Chinese operations, and Tesla operates over 3,000 Supercharger stalls in China through its wholly-owned subsidiary.
Recommendations for Foreign Clean Energy Companies
Based on this review of the FIL’s impact on the clean energy sector, foreign companies should consider several strategic approaches:
1. Structure for Wholly-Owned Operations Where Possible: The progressive liberalization of the negative list means that many clean energy activities — including energy storage manufacturing, smart grid equipment production, CCUS technology development, and NEV manufacturing — can now be conducted through wholly-owned subsidiaries rather than JVs. The wholly-owned model significantly reduces IP risk, provides greater operational control, and simplifies profit repatriation.
2. Use FIL Provisions as a Negotiation Tool: The FIL’s national treatment and anti-discrimination provisions provide legal leverage when local governments impose informal restrictions. Companies should document instances of discriminatory treatment and raise them through provincial-level Foreign Investment Service Offices, which the FIL mandates each province to establish.
3. Focus on Technology-Intensive Segments: The FIL’s IP protection provisions — while imperfect — provide a stronger legal foundation for technology-intensive business models than existed before 2020. Clean energy companies should focus their China strategy on segments where technology differentiation, rather than cost or scale, is the competitive advantage — advanced grid software, next-generation battery chemistry, hydrogen electrolysis, and carbon management platforms.
4. Engage in FIL Implementation Feedback: China’s Ministry of Commerce and NDRC actively solicit feedback from foreign companies on FIL implementation. Participating in the 30-day comment period for regulatory drafts and submitting annual feedback to the Foreign Investment Complaint Mechanism can help shape future policy improvements. Industry associations like AmCham China, the European Chamber, and the US-China Business Council coordinate this engagement — foreign clean energy companies should actively participate.
5. Monitor Negative List Updates: The negative list is updated annually, with continuing liberalization expected in clean energy areas. The 2024 update is expected to further liberalize restrictions on carbon trading services and renewable energy project development. Companies should track these updates and position themselves for new opportunities created by each annual revision.
Conclusion
China’s Foreign Investment Law represents a genuine step forward in creating a unified, transparent, and increasingly liberal legal framework for foreign investment in the clean energy sector. The progressive reduction of the negative list — from 48 restricted sectors in 2019 to 28 in 2023 — has opened significant new opportunities in energy storage manufacturing, NEV production, smart grid equipment, and CCUS technology. Implementation gaps persist, particularly at the local government level, and should be managed through a combination of legal leverage, provincial government engagement, and patience. However, for foreign clean energy companies willing to commit to the Chinese market, the FIL provides the most favorable legal environment in China’s modern history. Companies that structure their market entry to maximize the FIL’s protections — wholly-owned operations where possible, technology-focused business models, and active participation in policy feedback mechanisms — will be best positioned to benefit from China’s continued clean energy expansion.
