This year marks the fifth anniversary of the implementation of the Foreign Investment Law of the People's Republic of China (hereinafter referred to as the Foreign Investment Law). Over the past five years, how has the Shanghai Pudong New Area People's Court (hereinafter referred to as "Pudong New Area People's Court") accurately applied the new law and ensured the equal protection of the legitimate rights and interests of both Chinese and foreign investors? And how has it leveraged professional adjudication and innovative practices to support and safeguard Pudong's higher-level opening-up as a pioneer area?

Recently (on October 31), the Pudong New Area People's Court held a press conference to release the White Paper on the Trial of Commercial Cases Involving Foreign-Invested Enterprises (2020-2024) and to announce eight typical cases, providing a systematic summary of its judicial services and contributions to high-level opening-up.

Zheng Tianyi, Deputy Secretary of the Party Leadership Group and Vice President of the Pudong New Area People's Court, and Zhang Zhuoyu, Chief Judge of the Free Trade Zone Court of the Pudong New Area People's Court (hereinafter referred to as the "Free Trade Zone Court"), attended the press conference and answered questions from journalists. Deputies to the Shanghai Municipal People's Congress and representatives from some media outlets were invited to attend the press conference. The press conference was chaired by Yan Jianyi, Deputy Director of the Political Department and spokesperson of Pudong New Area People's Court.

During the past five years, 9,939 cases have been accepted, covering over 20 countries and regions.

According to Zheng Tianyi, the white paper released by the Pudong New Area People's Court conveys three key judicial messages: First, it demonstrates a determination to align with high-standard international economic and trade rules and apply the rule-of-law accurately. Second, it showcases judicial commitment to continuously optimizing the law-based business environment. Third, it presents a Chinese approach to developing a one-stop dispute resolution mechanism.

The white paper shows that from 2020 to 2024, the Pudong New Area People's Court accepted 9,939 commercial disputes involving foreign-invested enterprises (excluding intellectual property and financial cases) and concluded 9,645 cases. The total disputed amount reached CNY 27.14 billion, with an average of CNY 2.731 million per case.

Regarding causes of action, the disputes involved over 150 types of causes, though they were concentrated in and dominated by disputes of sales contracts, service contract disputes, and company-related disputes. Traditional commercial contracts such as sales, services, and processing remain high-incidence fields for disputes, while new types of disputes triggered by new business formats, models, and technologies are steadily increasing.

Regarding the investment entities, they are from a wide range of areas, from over 20 countries and regions worldwide, with cases involving countries of the Belt and Road Initiative (BRI) showing notable growth. Additionally, 52.2% of cases of disputes involving foreign-invested enterprises were resolved through mediation or withdrawal. This reflects enhanced mediation effectiveness and its major role in optimizing the business environment and promoting efficient and sound development of the economy in the foreign-invested sector.

According to the analysis of the white paper, cases involving foreign-invested enterprises accepted by Pudong New Area People's Court present five major characteristics: Increasing foreign capital and expanding investment sectors, shifting from traditional trade toward advanced manufacturing and modern services; more diverse forms of service trade disputes with increasingly complex issues; a rise in disputes over corporate transformation resolutions, particularly among enterprises that failed to complete restructuring during the five-year transition period, which has led to disputes regarding the validity of corporate resolutions; further standardization of the duties performed by directors, supervisors, and senior executives, as the associated risks worthy attention; more and more complex corporate governance structures, with frequent disputes in equity incentive plan implementation, raising higher demands for corporate governance rule design and governance capability innovation.

Five measures and ten recommendations are provided to comprehensively optimize the business environment

As Pudong New Area advances deeper reforms and broader opening-up today, how can the court offer judicial protection of foreign investors and further optimize the law-based business environment?

Zheng Tianyi noted that, on one hand, Pudong New Area People's Court has continuously elevated its position and established a long-term service mechanism. For example, through the legislative contact point of the Free Trade Zone Court, it collects enterprise feedback, participates in local legislative initiatives, and builds communication channels with foreign-invested enterprises. On the other hand, innovate the trial mechanisms to enhance the function of clarifying rights and resolving disputes.. For instance, it explores and establishes a "three-in-one" specialized trial mechanism that integrates professional judges, expert jurors, and expert consultation; strengthens the cultivation of foreign-related legal talent; and provides alerts on legal risks through white papers and research reports.

Additionally, Pudong New Area People's Court focuses on digital empowerment and enhances service precision by developing and building the "Shanghai Court Pilot Free Trade Zone Judicial Big Data Analysis System", predicting trends in the diversified structures of commercial case types arising from new models and new business formats during the rapid growth phase, thereby improving trial quality and efficiency.

To improve the efficiency of dispute resolution, drawing on the experience of its one-stop dispute resolution platform integrating litigation, mediation, and arbitration, Pudong New Area People's Court promoted and facilitated the official implementation of the Several Provisions of Pudong New Area on Improving the Diversified Resolution Mechanism for Foreign-Related Commercial Disputes on June 1, 2024. Online mediation and asynchronous hearings further enhance the dispute resolution experience for overseas investors and put in place an effective approach to addressing disputes.

Zheng Tianyi pointed out that the white paper also includes a section on "Legal Alerts on the Protection of Rights and Interests of Foreign-Invested Enterprises", systematically outlining ten high-frequency legal issues across three categories, i.e., corporate governance, market transactions, and litigation procedures, with risk alerts and legal references, in a bid to ensure the steady and sustainable growth of enterprises.

Notably, the Legal Alerts offer interpretation on issues such as corporate governance transition after the expiration of the five-year transition period under the Foreign Investment Law and duty-related risks of senior executives. They also provide clear judicial guidance for emerging matters involving digital services, offshore trade, cross-border data flows, equity incentives, and variable interest entity (VIE) structures. To tackle common procedural challenges¡ªsuch as frequent jurisdictional disputes, difficulties in service of process, and cumbersome notarization and authentication¡ªthe white paper proposes concrete solutions, guiding enterprises to choose appropriate dispute resolution methods at the contract formation stage.

Eight typical cases provide rules and guidelines

Over the past five years, commercial cases involving foreign-invested enterprises have exhibited three trends: a shift in dispute nature from "market access" to "corporate governance" (new development stage of foreign investment); a shift in dispute forms from "traditional transactions" to "complex ecosystems" (business model); and a deep integration of "localization" and "globalization" in interest structures.

Based on these trends, Zhang Zhuoyu released eight typical cases, covering dispute types such as service trade, transformation resolutions, senior executives' duty performance, and equity incentives, involving industries such as international trade, medical research, and integrated circuits. Ensuring foreign-invested enterprises enjoy equal rights with domestic companies in litigation status, application of law, and legal remedies, the courts have reduced institutional transaction costs and created a stable, transparent, and predictable legal environment for international investment.

For example, one case related to shareholder qualification involved a foreign shareholder, Cheng, an actual contributor of capital, whose equity was held by a nominee, Zhang, due to policy restrictions. A dispute later arose over equity ownership. Applying the new law, the court ruled that Cheng was the rightful equity holder and ordered the company to register the equity in his name. This case typifies the real-name registration of foreign nominee shareholders following the implementation of the Foreign Investment Law. It establishes the review rules for such real-name transitions under the negative list policy of foreign investment and serves as a model for safeguarding cross-border investment rights and interests.

In another case involving company dissolution, the court used institutional innovation to facilitate dispute resolution and boost the confidence of foreign investors. In the case, a Chinese-foreign joint venture fell into abnormal operation due to the death of a shareholder and disagreements in business philosophy. Relying on the "One-Stop Dispute Resolution Center for Foreign-Related Commercial Disputes," Pudong New Area People's Court collaborated with the CCPIT Shanghai International Commercial Mediation Center to conduct mediation, facilitating the plaintiff's share withdrawal and shareholder R's continued operation. The related litigation was simultaneously withdrawn, and the company ultimately resumed normal operations.

Representative Comments

Xu Minxu, Deputy to the Shanghai Municipal People's Congress, Deputy Director of the Pudong New Area Science and Technology and Economic Commission

The White Paper on the Trial of Commercial Cases Involving Foreign-Invested Enterprises issued by Pudong New Area People's Court provides a comprehensive guide to legal practice for foreign enterprises by systematically reviewing dispute characteristics and compliance risks since the implementation of the Foreign Investment Law. In recent years, Pudong New Area People's Court has closely aligned with the strategy of high-level opening-up. By accurately understanding the legal needs of foreign-invested enterprises and clarifying adjudication rules through typical cases, the court has guided enterprises in building standardized governance and transaction systems, established stable expectations for their operations in China, and helped them prevent legal risks at the source. We look forward to the Pudong New Area People's Court continuing to strengthen its judicial services and provide robust support for building a world-class, market-oriented, law-based, and internationalized business environment.

Chen Feng, Deputy to the Shanghai Municipal People's Congress, Vice Chairman of the Advisory Committee of Beijing Dacheng Law Offices, LLP, Secretary of the Party Committee and Partner of Dacheng (Shanghai) Law Firm, and Expert Member of the Expert Committee on Foreign-Related Commercial Affairs of Pudong New Area People's Court:

On the fifth anniversary of the Foreign Investment Law, the White Paper on the Trial of Commercial Cases Involving Foreign-Invested Enterprises released by Pudong New Area People's Court accurately identified the judicial needs of foreign-invested enterprises in fields such as corporate governance and cross-border transactions. By distilling the key points of adjudication from typical cases and issuing professional legal alerts, it has not only provided clear adjudication standards for disputes but also helped enterprises prevent risks in key areas. This practice, which extends judicial guarantees from "ex-post dispute resolution" toward "ex-ante risk prevention and control," represents an important judicial innovation, contributing to a stable, fair, and transparent business environment, providing a solid rule-of-law support for higher-level opening-up.

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