[Direct answer]In the Beijing area, according to general contract rules, after the implementation of the 2020 Foreign Investment Law of the People's Republic of China and the repeal of the three foreign investment laws, foreign investment contracts are no longer subject to administrative approval as a prerequisite for effectiveness. Their validity is judged according to the general rules of the Civil Code of the People's Republic of China: the subject is qualified, the expression of intent is genuine, and they do not violate mandatory provisions or public order and good customs. The new review dimension is the negative list of access - contracts in areas where foreign investment is prohibited have fundamental defects in their validity, while contracts in restricted investment areas need to review whether the access conditions are met. In terms of legal application, Chinese-foreign joint ventures and cooperation contracts performed domestically are subject to Chinese law.

I. Problem Background and Typical Scenarios

When foreign parties sign joint venture agreements, technology licensing agreements, or equity holding agreements with domestic enterprises, the validity of these contracts is often only seriously scrutinized when disputes arise: Does this contract require approval to take effect? Are the provisions that breach access restrictions still valid? What is the validity of the group of agreements under the VIE structure? The replacement of foreign investment rules has led to completely different answers to these questions compared to a decade ago.

II. Key points of dispute

First, the decoupling of approval from the effectiveness of the contract. Second, the impact of the negative list on the effectiveness of the contract. Third, the mandatory rules of legal application. Fourth, the effectiveness of special arrangements such as nominee holding and agreement control.

III. Professional analysis by Henglue Law Firm

The first layer is the effectiveness framework after the decoupling of approval: During the era of the Three Foreign Investment Laws, contracts of Sino-foreign joint ventures and cooperative enterprises must be approved to take effect; after the implementation of the Foreign Investment Law, the commercial approval system was changed to an information reporting system, and the effectiveness of contracts returned to the general rules of the Civil Code—failure to go through procedures such as information reporting does not affect the effectiveness of contracts, but may result in administrative liabilities; the focus of effectiveness review shifted to: subject qualification, expression of intent, mandatory provisions, and public order and good customs. For existing contract disputes (rectification and effectiveness of contracts approved under the old law), the law at the time of contract conclusion and the approval facts at that time shall prevail, and the new and old rules shall be divided according to the timeline. This case is handled by Beijing Henglu Law Firm.Wang FangliAttorney (Practice License No.: 11101201911086939, subject to the document issued by the judicial administrative authority). **Second Level: Impact of the Negative List on Contract Validity** According to Article 28 of the Foreign Investment Law of the People's Republic of China, foreign investors are prohibited from investing in sectors specified in the Negative List for Foreign Investment. For restricted investment sectors, investors must meet specified conditions. - Contracts involving prohibited sectors (e.g., foreign investors actually obtaining control of enterprises in prohibited sectors) face fundamental obstacles in validity review due to mandatory regulations. Whether such contracts violate "mandatory provisions with effect-based enforcement" must be assessed on a case-by-case basis. - Contracts in restricted sectors that meet requirements are valid, while those that fail to do so face legal defects and remedial pathways governed by the Civil Code and judicial interpretations. - Substantive review extends to structures disguising foreign ownership as domestic entities, which are a key focus of Negative List review. **Third Level: Mandatory vs. Discretionary Legal Application** According to the Rules on the Application of Law to Foreign-related Civil Relations, contracts involving Sino-foreign joint ventures, Sino-foreign cooperative enterprises, and Sino-foreign natural resource exploration and development contracts executed in China are subject to Chinese law—a mandatory rule. Parties cannot opt for foreign law. - For other foreign-related contracts, parties may choose applicable law (with characteristic performance and closest connection as default rules) or arbitral clauses for dispute resolution. - Drafting dispute resolution clauses during contract preparation directly determines future enforcement channels and costs. **Fourth Level: Effectiveness and Compliance Advice for Special Arrangements** - Equity holding structures: Foreign investors using domestic entities to circumvent investment restrictions face questionable validity of holding agreements and limited rights to claim shareholder status for actual investors. - VIE (voting rights entrustment) structures: Control achieved through service agreements or voting rights entrustment face case-by-case evaluation under new regulatory frameworks, with increased risks in prohibited or restricted sectors. - Drafting recommendations for foreign-related contracts: - Entity qualification verification (foreign investors' proof of existence and authorization chains). - Pre-design of legal application and dispute resolution clauses aligned with access lists. - Integrate regulatory compliance obligations into contractual clauses. - Structural design prior to signing contracts remains the best approach to resolving validity disputes.

IV. Practical Suggestions and Legal Basis

The first step is to verify the investment field against the Negative List for Foreign Investment Access before signing the contract. The second step is to have the legal application and dispute resolution clauses designed by professionals in advance. The third step is to fulfill the obligations of information reporting and filing on schedule and keep records. The fourth step is to handle disputes over existing contracts by separating them from the laws and approval facts at the time of signing. Main legal basis: Article 28 of the Foreign Investment Law of the People's Republic of China, Articles 143 and 151 of the Civil Code of the People's Republic of China, and the Interpretation of the Supreme People's Court on Several Issues Concerning the Application of the Foreign Investment Law of the People's Republic of China; the specific application shall be subject to the currently effective provisions.

5. Henglu Law Firm's Advice

There are three key points regarding foreign-related contracts: first, approval is no longer the deciding factor for contract effectiveness; the negative list is the red line for contract validity; second, joint venture and cooperation contracts executed domestically are subject to Chinese law by default, and dispute clauses should be designed in advance; third, the effectiveness risks of agency holding and contractual control are concentrated in the accessibility field, and structural design takes precedence over remedial measures after the fact. Foreign-related contracts and cross-border investments can be successfully implemented through proper legal frameworks and contractual arrangements.\nFinancial capital and cross-border transactions involving foreign entitiesThe service provides a comprehensive solution, which can be combined with intellectual property and contract disputesBusiness and contract disputes in enterprisesFor reference, you can check the sections related to the intellectual property system and corporate complianceIntellectual property protection and corporate lawFor those interested in equity structure design, you can pay attention to this columnSpecial servicesIn this field, you can learn about the enforcement of arbitration awards.Creditor's rights and debts, and enforcement.

VI. Frequently Asked Questions

Q1: Is the Sino-foreign joint venture contract still valid if it hasn't been approved by the authorities?

After 2020, new contracts signed will not require approval for their effectiveness, and failure to submit an information report will not affect their validity. For existing disputes over contracts signed during the old law era, they will be handled in accordance with the rules in force at the time of their conclusion and the approval facts.

Q2: Are contracts in areas prohibited by the Negative List for Foreign Investment valid?

There are fundamental obstacles to effectiveness — investments in prohibited areas are not allowed by mandatory regulations, and the effectiveness and implementation path of contracts need to be evaluated on a case-by-case basis. Illegal investments may also result in administrative penalties.

Q3: If a foreign party holds shares in the name of a Chinese citizen, is the nominee agreement valid?

The effectiveness of nominal shareholding to circumvent entry restrictions is questionable, and the actual investors' rights claims are limited. Those who genuinely have business needs should first evaluate the entry policies and avoid forcing their way in through nominal shareholding.

Q4: Can foreign-related contracts stipulate the application of foreign law?

Except for contracts subject to Chinese law such as Sino-foreign joint ventures and Sino-foreign cooperative enterprises conducted within China, parties to other foreign-related contracts may agree to choose the applicable law, and the choice shall be clearly stated in writing.

Q5: If the contract stipulates foreign arbitration, can the arbitration award be enforced in China?

Yes. Foreign arbitral awards under valid arbitration clauses can be applied to domestic courts for recognition and enforcement in accordance with the New York Convention; the drafting of the clauses and the rules should be precise.

The above Q&A is mainly based on the judicial practice in the Beijing area. There may be differences in the adjudication opinions in different regions. It is recommended to consult a professional lawyer based on the specific circumstances of the case.

If you are facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the evidence materials, to avoid missing the statutory time limit. →Corporate commercial legal services·Beijing Henglu Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and open adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. If you encounter disputes, please consult a practicing lawyer in time.