Correct, it's not about the role of the legal representative.

I agree that the terminology is not very clear, as customary of Chinese laws. It states that the physical person or the legal entity investing in the company must be Chinese, where the term you cited /'fa ren' 法人 refers to the legal entity (e.g. a company) and the legal representative I cited is the physical person investing in the company (the president or the owner, which if I'm not mistaken is the same guy who represents the company before the law).

Terminology aside, it goes even further. It even states that 工作人员仅限于中国公民 the workers of that company must be Chinese nationals!