International
Comparative
Legal Guides

Foreign Direct
Investment Regimes 2020
A practical cross-border insight into FDI screening regimes

First Edition

Featuring contributions from:
Advokatﬁrmaet Thommessen AS

Carey

Pinheiro Neto Advogados

AKD

Chiomenti

PRA Law Ofﬁces

ALRUD Law Firm

Flor & Hurtado

Schoenherr

Anderson, Mōri & Tomotsune

Gowling WLG (UK) LLP

Tunde & Adisa LP

Baker Botts L.L.P.

Ipek | Akın | Schwimann

Uría Menéndez

Beiten Burkhardt

Iwata Godo

Waselius & Wist

Boga & Associates

Lehman, Lee & Xu

Bredin Prat

Niederer Kraft Frey Ltd

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ISBN 978-1-83918-010-1
ISSN 2633-3724

Foreign Direct Investment Regimes 2020

Published byFirst Edition

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Table of Contents

Expert Chapters
1

Foreign Direct Investment Screening at a Time of Increasing Economic Uncertainty and Trade Protectionism
Matthew Levitt & David Gabathuler, Baker Botts L.L.P.

8European Union
Matthew Levitt, Soﬁa Doudountsaki & David Gabathuler, Baker Botts L.L.P.

14

Recent FDI Trends in the APEC Region
Akira Matsuda & Shin Setoyama, Iwata Godo

Q&A Chapters
18

Albania
Boga & Associates: Genc Boga & Alketa Uruci

80

Japan
Anderson, Mōri & Tomotsune: Hiroaki Takahashi &Koji Kawamura

23

Austria
Schoenherr: Volker Weiss & Sascha Schulz

86

KosovoBoga & Associates: Sokol Elmazaj & Delvina Nallbani

91

Netherlands
AKD: Carlos Pita Cao & David Molenaar

97

Nigeria
Tunde & Adisa LP: Ayobami Tunde, Gbemisola Mosuro &Ifeoluwa Gbarada

27

BrazilPinheiro Neto Advogados: Fernando Alves Meira &Gustavo Paiva Cercilli Credo

31

Chile
Carey: Diego Peralta & Vesna Camelio

35

China
Lehman, Lee & Xu: Jacob Blacklock & Shi Lei

104 Norway

Ecuador
Flor & Hurtado: Mario Flor, Jose Cisneros &Daisy Ramirez

109 Russia

41

46

Finland
Waselius & Wist: Lotta Pohjanpalo & Matti Siiteri

51

FranceBredin Prat: Pierre Honoré, Olivier Billard & Arthur Helfer

57

62

Germany
Beiten Burkhardt: Philipp Cotta &Dr Christian von Wistinghausen
Hungary
Schoenherr-Hetényi Attorneys-at-Law: Kinga Hetényi &Adrián Menczelesz

67

India
PRA Law Ofﬁces: Apoorva Agrawal & Sanjeev Jain

74

Italy
Chiomenti: Filippo Modulo, Giulio Napolitano & Andrea
Sacco Ginevri

Advokatﬁrmaet Thommessen AS: Eivind J. Vesterkjær &Magnus Hauge Greaker

ALRUD Law Firm: Alla Azmukhanova &Alexander Artemenko

115 Spain

Uría Menéndez: Edurne Navarro Varona,
Manuel Vélez Fraga & Xavier Codina García-Andrade

120 Switzerland

Niederer Kraft Frey Ltd: Philipp Candreia &Philippe A. Weber

125 Turkey

Ipek ǀ Akın ǀ Schwimann: Tansu Akin &Ceyda Akbal Schwimann

131 United Kingdom

Gowling WLG (UK) LLP: Bernardine Adkins &Samuel Beighton

138 USA

Baker Botts L.L.P.: Matthew T. West, Paul Luther &Jason Wilcox

14

Chapter 3

Recent FDI Trends in the
APEC Region
Akira Matsuda

Iwata Godo

1 Overview of the Global Foreign Direct
Investment (FDI) Market
According to the UNCTAD World Investment Report 2019
(UNCTAD (2019), World Investment Report 2019, New York andGeneva: United Nations), Foreign Direct Investment (“FDI”) flows
around the world have been decreasing for three years in a row. The
FDI flow was USD 1.5 trillion in 2017 and it decreased to USD 1.3
trillion in 2018. Analysed by region, FDI inflows in Europe
decreased by 55%, by 4% in North America, and by 6% in Latin
America and the Caribbean. However, contrary to these regions, the
FDI inflows to the Asia-Pacific Economic Cooperation (“APEC”)
region increased by 1% to USD 839 billion (Asia as a wholeincreased by 4% to USD 512 billion). Looking at more specific areasin the APEC region, FDI inflows in the South East Asian countries(i.e. ASEAN countries) have increased for three consecutive years.
FDI inflows in Singapore, Indonesia, Vietnam and Thailand haveincreased and are still showing an upward trend. In addition to
South East Asia, FDI in South Asia increased by 4%, by 4% in East
Asia and by 3% in West Asia. It is clear from these figures that the
Asian market is still very attractive to investors from other regionsof the world. Asia is the leading FDI market in the world and about
39% of global inflows were received by Asian markets (APEC
received about 65% of global inflows).
What are the causes of these fluctuations in FDI flows? The FDI
market can be affected by many factors, including the economic, tax
and political environments. However, the specific FDI regulations
and policies in force in each country play a fundamental role. In
2018, 112 changes were made worldwide to regulations governingor affecting FDI. Amongst these 112 changes, 65 changes (58.04%)
were aiming at relaxing the regulations to ease and encourage FDI
flows and spur the economy. Conversely, 31 changes (27.68%) weremade to tighten regulations with the rest being neutral. Comparing
relaxation vs. tightening trends, it seems like the world is still intent
on liberalising FDI rules. However, this can be compared with the2017 figures with 144 changes including 98 changes (68.06%) torelax regulations and 23 changes (15.97%) to tighten regulations.
The percentage of changes bringing about restrictions increased by
11.71% from 2017. Moreover, the number of amendments aiming
at tightening FDI regulations has been growing for four consecutive
years. Therefore, in recent years, there has been conflicting trends
reflecting diverse national policies and strategies, including within
the APEC region.
Key amendments to the FDI regimes of major APEC countries
are explained below.

2 Recent Amendments in China, South East
Asia and South Asia
Developing and emerging countries in the APEC region, especiallyChina and South East Asia, have attracted high inbound investments

ICLG.com

Shin Setoyama

by foreign investors, not just from Asia but also Europe and North
America. Many factors can explain this continuous trend, including
the relaxation of FDI regulations. Investors are very active in theregion across almost all industries.
China

Since 2018, the trade war between China and the United States has
been intensifying. The news reports daily on the complex relationship between the two countries. However, even though bilateral ties
are not on the mend and the political situation between the twocountries remains confrontational, FDI inflows to China increased
by 4% in 2018 and FDI channelled to the manufacturing industry
increased by 20% from 2017. Moreover, about 60,000 new
companies have been established by foreign investors in China
during 2018. Countries investing in China are not just developing
countries or local players like Hong Kong, South Korea andSingapore; FDI inflows from more developed economies in Europe
like the United Kingdom, France and Germany have also increased.
In the past, China was one of countries which was typically trying
to strictly limit and control FDI flows. A foreign investor trying toestablish a company in China had to obtain prior clearance from the
Ministry of Commerce (MOFCOM). Such policy was reversed
following drastic amendments in 2016. The PRC has adopted a new
regime which significantly reduces costs and procedures to befollowed by a foreign investor establishing a company in China. The
2016 reform replaced the approval requirement with a notification
requirement, except in some sensitive sectors which are still subject
to the approval of the relevant authority (these exceptions are listed
in a “Negative List”).
The Negative List was revised in 2018 with effect in July 2018.
The number of prohibited, restricted or regulated sectors (including
agriculture, infrastructure, finance, and the automotive sector) has
been reduced from 63 to 48. After the entry into force of the 2018
Negative List, BMW, a German car manufacturer, invested USD 4
billion to acquire additional shares in its PRC joint venture toincrease the shareholding. Such an example shows that relaxing
regulation led to the growth of FDI inflows heading to China.
In June 2019, the Chinese authorities announced theimplementation of the 2019 Negative List (the Special Administrative
Measures on Access to Foreign Investment (2019 edition)) and theFree Trade Zone Special Administrative Measures on Access toForeign Investment (2019 edition), which further relax FDI
regulations and replace their respective 2018 editions. Besides the2019 Negative List, the new Encouraged Catalogue, or the Catalogueof Encouraged Industries for Foreign Investment (2019 edition), lists
industries where foreign know-how and investment is welcome. The
2019 Negative List has further lifted prohibitions or eased restrictions
in sectors such as the oil and natural gas industries, mining and transportation. This move will likely enhance FDI in the PRC.

Foreign Direct Investment Regimes 2020

© Published and reproduced with kind permission by Global Legal Group Ltd, London

XX
Iwata Godo

South East Asia and South Asia

As mentioned in the overview, FDI in South East Asia and South
Asia is constantly on the increase and 2018 was an all-time high forSouth East Asia. In the South East Asia region, the main ASEAN
countries, namely Singapore, Indonesia, Vietnam and Thailand areleading the pack. With regard to South Asia, Bangladesh is experiencing significant growth and is one of the fastest-growing
economies in the world, while India is still absorbing 70% of the
FDI heading towards South Asia.
Indonesia
FDI inflows to Indonesia have increased by 7% compared to 2017,
reaching USD 22 billion. More than half of the investments arefrom Singapore, followed by China and Japan. Many multinational
companies invest in Indonesia through a regional headquarters
established in Singapore. Foreign investors have been especiallyinterested in manufacturing, infrastructure, real estate and the digital
economy.
Back in 2016, there was a relaxation of FDI regulations, and thenumber of regulated sectors decreased from 664 to 515. The reformof the FDI regulation policy has slowed down since 2018; however,the Indonesian government has set a goal to be ranked in the top 10
economic powers by 2030. To boost FDI, the Indonesian government has announced that it will actively pursue policies aiming
towards the relaxation of FDI regulations.
In August 2019, to enhance investment by foreign banks, theIndonesian authorities started considering a reform of bank ownership rules which had been preventing foreign banks from investing
into Indonesian banks.
Singapore and Thailand
In 2018, FDI inflows to Singapore increased to USD 78 billion from
USD 76 billion, which constituted about half of FDI inflows toSouth East Asia. Cross-border inbound M&A was the main reason
for the growth. There were no major amendments made to the FDI
regulations and policy in 2018; however, Singapore is already known
as an open country regarding FDI.
FDI inflows to Thailand increased sharply in 2018. FDI reached
USD 10 billion which is a 62% increase from the previous year, andsuch investments are led by Japan and Singapore. The manufacturing, financial and insurance sectors have attracted many foreign
investors.
India
FDI in India increased by 6% to USD 42 million in 2018.
Investments in manufacturing, communications and financial
services were relatively stable.
Since 2017, India has been liberalising its FDI policy to enhance
FDI inflows. In January 2018, India liberalised its FDI regulations
in certain industries, including single-brand retail trading and airlines.
In addition, in August 2019, the Indian government announced a
new regulation which allowed single-brand retailers, like Apple, toopen online stores before opening retail outlets in India.
The background of the position taken by the Indian governmentis that although India is still economically growing, the rate of
growth has decreased compared with past decades. To boost
economic growth, the Indian government believes that FDI growthis essential and they are contemplating further relaxation of theirregulatory framework to liberalise foreign insurance intermediationand sourcing regulations.
Notwithstanding this, the Indian government is still conservativein many respects. It approved new policies on e-commerce toprotect local offline and online retailers that came into effect on 1
February 2019. The new policies banned the offering of large
discounts by online marketplaces. This change in policy had asignificant impact on foreign e-commerce companies operating in

Foreign Direct Investment Regimes 2020

India, such as Walmart and Amazon. Walmart acquired India’s
biggest e-commerce platform in 2018, a year before these changes,
which boosted the amount of inbound cross-border Indian M&A
to USD 33 billion in 2018.

3 Amendments in APEC Developed Countries
Unlike developing countries in the APEC region, developed countries such as Japan and Australia (excluding developed ASEAN
members), have taken opposite steps regarding FDI regulations.
Japan and Australia have introduced stricter FDI regulations overrecent years, following the trend prevailing in many developed countries around the world. The restrictions in Japan and Australia aremeant to align their rules with those of the United States and theEU. For example, in the United States, the Committee on Foreign
Investment in the United States (CFIUS) implemented a pilot
programme in November 2018. Under the programme, a foreign
investor is required to file a mandatory notification to invest incertain critical technology and the President of the United States has
the authority to block investments. In the EU, the European Council
has approved new FDI screening regulations which came into force
in April 2019 and which allow Member States to request informationand give their opinion regarding FDI in the EU. These stricter FDI
policies in developed countries aim to protect national security fromforeign investors. As a result, for example, the number of outboundmergers and acquisitions by Chinese companies increased sharply
from 2015, but the number has been decreasing from 2017 for two
consecutive years.
Japan

FDI in Japan in 2018 amounted to USD 26 billion, which means anincrease of 26.7% compared to 2017. Half the investments in Japan
were in the manufacturing sector, which increased by 32% to USD
13.2 billion. By industry type, electrical equipment, transportationequipment, chemicals and the healthcare industry were driving
growth in the Japanese market. This has resulted from a number oflarge transactions (e.g. the acquisition of Toshiba Memory by the
consortium led by Bain Capital and completed in 2018).
The Japanese government has imposed FDI restrictions on
national security grounds. One of the major changes in Japan was
the amendment of the Foreign Exchange and Foreign Trade Act ofJapan (Act No. 228 of 1949) (“FEFTA”) in 2017. The amendment
permits the Ministry of Finance to order a foreign investor, which
has obtained shares in a Japanese company without filing amandatory notification to the Bank of Japan, to sell such acquiredor allotted shares.
Moreover, Japan further amended the FEFTA in May 2019 toexpand the scope of sectors which require a prior notification to the
Bank of Japan in case of foreign investment, including the manufacturing of data processing software, and computer andtelecommunications equipment. The same reason mentioned forthe policy changes in the United States and the EU underpins thisamendment, introduced to prevent the leakage of important technology and to protect manufacturing or technological infrastructure
relating to national security from being damaged or sabotaged.
In August 2019, the Japanese government started planning new
amendments to the FEFTA to further tighten up FDI regulations.
Now the Japanese government is seeking to amend the current 10%
threshold rule. The 10% threshold rule triggers a prior notification
filing requirement with the Bank of Japan if a foreign investoracquires more than 10% of the shares in a Japanese company inspecific sectors. Under the current FEFTA, sectors subject to the
10% threshold rule are fairly diverse: gas, electricity, weapons,broadcasting, etc. The Japanese government is planning to reduce
the threshold to 1%. The reason for the proposed amendment canbe found in the Companies Act of Japan, under which a shareholder

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15

16

Recent FDI Trends in the APEC Region

holding more than 1% of the issued shares has the right to propose
a new agenda to be the subject of a shareholders’ meeting.
Therefore, such shareholder may be involved in the decision-makingof the company on material issues through a shareholder’s proposal.
By introducing the 1% threshold, the Japanese government may
obtain information on foreign investors having such “power” incompanies engaged in sectors that are generally deemed sensitive andmay block the acquisition, if necessary.
In practice, the Japanese government has only very rarely interfered with the acquisition of shares by foreign investors. However,in 2008, a British hedge fund, The Children’s Investment Fund, hadplanned to acquire additional shares in Electric Power Development
Co., Ltd., a Japanese electricity company, to increase its share ownership percentage to 20%. In this case, after the filing of a priornotification with the Bank of Japan, the Japanese government
rejected their proposal on the ground of the possibility ofjeopardising public order. It was the first time the Japanese government had ordered a halt to the acquisition of additional shares.
As part of a difficult balancing act, at the same time the Japanese
government will introduce the 1% threshold rule, it is planning to
introduce easier procedures for foreign investors in areas unlikely toaffect national security to boost FDI in Japan.
These amendments are expected to become effective sometime in2020. It will be the first comprehensive reform of the FEFTA since
FDI in Japan became free in principle in 1980.
Australia

In 2018, FDI inflows to Australia increased by 43% to USD 60
billion from USD 42 billion.
Similar to Japan and other developed countries, to manage
national security risk, the Australian government adopted a new
regime, the Security of Critical Infrastructure Act 2018, to restrict
investment in certain important and strategic sectors including electricity, gas, water and ports. Under this act, (i) a “responsible entity”(e.g. for critical electricity or gas assets, the entity that holds thelicence, approval or authorisation to operate the asset to provide therelevant service) is required to report “operational information” (e.g.
the location of the asset, etc.), and (ii) a “direct interest holder” (e.g.
together with any associate of the entity that holds an interest of at

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least 10% in the asset, etc.) is required to report “interest and control
information” (e.g. details of the entity, etc.). A foreign investor who
is caught by the regulation is required to report a large amount of
information and a penalty may be imposed in case of noncompliance.
In addition, on 1 February 2018, the Australian government
announced that a foreign investor intending to acquire agriculturalland is required to demonstrate to the Foreign Investment Review
Board that Australians had the same opportunity to acquire the land(the sale was widely advertised).

4 Future Prospects
Historically, developing countries in the APEC region have favoured
a strict oversight of inbound investments and FDI restrictions toprotect their own market and industries. However, they are now at
a stage which requires more FDI to fuel further economic growth.
In addition to the good location, a generally skilled labour force andlow labour costs, especially in South East Asia, FDI policy reform isan effective tool to attract foreign investors. The liberalisation of
local FDI regimes is likely to continue in developing APEC countries
and emerging markets. It is also important to note that these countries are competing between themselves and investors are playing
hard-to-get.
In contrast, developed countries like Japan and Australia are now
getting more restrictive: national security, trade secrets, access tocyberspace, big data and new technologies need more scrutiny, oversight and legal protection from a mature and sophisticated market
perspective. However, the tightening of FDI regulations in developed countries does not take us back to the past, at a time when FDI
was very strictly regulated. The thrust behind the restrictions is not
to protect their industries against foreign competition. Markets indeveloped countries are generally open compared to those in developing countries; the concern is with national security.
Changes in FDI regulations and policies are very active in the
APEC countries, both developed and developing. Such changes may
drastically change the FDI market in the APEC countries and may
adversely affect foreign investors’ current or proposed projects, suchas in Walmart’s case. Thus, it is essential for foreign investors to keep
an eye on the latest developments in the region.

Foreign Direct Investment Regimes 2020

© Published and reproduced with kind permission by Global Legal Group Ltd, London

XX
Iwata Godo

Akira Matsuda is an attorney-at-law (admitted in Japan and New York) and a partner at Iwata Godo heading the AI/TMT and Data Protection
practice group. He is based in Tokyo and Singapore. His practice focuses on cross-border transactions, including mergers and acquisitions, aswell as international disputes (litigation/arbitration), and advice on digital/TMT-related matters. Mr Matsuda regularly advises Japanese and foreignclients on data security issues (Japanese laws, Singapore PDPA, and EU GDPR) including on the structuring of global compliance systems. He
also advises complicated cross-border corporate investigation matters.
He is a graduate of the University of Tokyo (LL.B.) and Columbia Law School (LL.M.).
Iwata Godo

Tel:

Marunouchi Building 10F

Email: amatsuda@iwatagodo.com+81 3 3214 6205

2-4-1 Marunouchi, Chiyoda-ku

URL:

www.iwatagodo.com

Tokyo, 100-6310
Japan

Shin Setoyama is an attorney-at-law (admitted in Japan) and associate at Iwata Godo. He formerly worked for an international law firm in Tokyo.
His practice focuses on cross-border transactions, including mergers and acquisitions, finance transactions and investigation matters. He regularly
advises clients across a broad range of industries, including financial institutions and various types of multinational manufacturers. Mr Setoyama
also advises international companies on general corporate matters relating to Japanese law.
He is a graduate of Keio University (LL.B.) and Keio University Law School (JD).
Iwata Godo

Tel:

Marunouchi Building 10F

Email: shin.setoyama@iwatagodo.com+81 3 3214 6205

2-4-1 Marunouchi, Chiyoda-ku

URL:

www.iwatagodo.com

Tokyo, 100-6310
Japan

Iwata Godo is one of Japan’s premier and oldest law ﬁrms. It was establishedin 1902 as one of the ﬁrst business law ﬁrms by Chuzo Iwata, an attorney-atlaw who subsequently held various positions, including serving as Minister ofJustice and president of the Japan Federation of Bar Associations. It is a fullservice ﬁrm with about 70 attorneys and each of its practice areas is highly
regarded. It is the ﬁrm of choice for clients with respect to their mostchallenging legal issues, including cross-border investments into Japan. Overthe past few years, Iwata Godo has hosted a number of international seminars
and conferences on data protection, often in coordination with “best friend”
ﬁrms that are renowned ﬁrms and market leaders in their jurisdictions.
www.iwatagodo.com

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