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China Releases Directives to Boost Foreign Investment

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ECFO • 4 minutes read
September 5, 2023 

China Releases Directives to Boost Foreign Investment - Blog from ECFO

China’s slowing economic growth since reopening has prompted its officials to ramp up efforts in attracting foreign direct investment. On August 13, China’s State Council released a document containing 24 new guidelines to optimize the country’s business environment for foreign companies.

The document, called Opinions of the State Council on Further Optimizing the Environment for Foreign Investment and Increasing Efforts to Attract Foreign Investment (”Opinions”), was an expansion of an earlier version released on July 25th. As China continues to move forward with this strategic commitment, here is what potential investors need to know.

Leveling the Playing Field for FIEs

A key aspect of the directives is ensuring that foreign-invested enterprises (FIEs) participate on equal footing in government procurement processes. Foreign companies are welcome to file a complaint and have it handled according to law should their rights and interests are jeopardized. This move seeks to mitigate past challenges for FIEs in China, which often faced domestic substitution and ambiguous assessment criteria for tenders in the past.

Moreover, the directives emphasized that FIEs shall be treated with no discrimination or exclusion due to their (foreign-invested) brands. Regulatory bodies are urged to develop and enforce foreign-related economic and trade policies in ways that enhance transparency and predictability for FIEs. This will hopefully make it easier for FIEs to bid on government projects without fearing domestic bias, helping them expand their footprint in China.

Strengthening IP Rights

China also addressed another critical concern for FIEs by mentioning its commitment to safeguard intellectual property rights – particularly in the procurement of medicines and medical consumables.

The guidelines stressed a crackdown on infringements made to FIEs’ intellectual property, faster handling of cases with clear facts, and simplified procedural requirements for FIEs.

Welcoming Environment for Foreign Talent

The directives promised a smoother immigration process for FIEs’ senior executives, technical experts, and their families.

Foreign applications for permanent residence identity cards in public transport, financial services, internet payment and other scenarios will also be made more convenient – making it easier for expats to live and work in China.

China recently followed up on these directives by announcing extended tax breaks for expat workers until 2027.

Promoting R&D collaborations

The directives called to incentivize FIEs into setting up R&D centers in China, undertake major science and research projects, and carry out R&D and industrial application with domestic enterprises.

Furthermore, authorities are urged to expedite the launch of foreign-investment ventures in biomedicine, and the application process for drugs with established international presence. FIEs were also encouraged to carry out clinical trials of foreign cellular and gene therapy medicines.

Foreign companies in advanced manufacturing, modern services, and the digital economy were also invited to conduct training with vocational colleges and training agencies. Training with local experts can help foreign companies understand China’s unique business culture and regulations faster, and build relationships with local institutions.

Exploring Intellectual Property Financing

The Chinese government encouraged the creation of intellectual property pledge financing, and support for the standardization and exploration of securitization of intellectual property. This involves aligning with high-quality international economic and trade rules.

For instance, China plans to encourage businesses to harness intellectual property rights, corporate ownership, and physical assets as a way to get funding. The government is also exploring ideas of turning intellectual property into tradable shares that people can invest in, which can yield new investment prospects and business ideas. As PRC law currently does not regulate these in detail, applicable regulations are yet to be created.

Expanding Telecom Investment Opportunities

Foreign investors are being invited to play a larger role in China’s telecommunications sector. From setting up investment firms to establishing regional headquarters, the doors for this sector are opened as China calls for more pilot areas for equity investment, venture capital, and value-added telecom businesses. Domestic internet VPNs (with a foreign equity ratio of no more than 50%), information service businesses (app stores only, excluding online publishing services), and Internet access service providers were specifically mentioned.

The implementation of the domestic investment pilot program by qualified foreign limited partners (QFLPs), a local program allowing foreign investors to invest in China’s financial market, was also highlighted in a bid to attract more foreign investors.

Support for Industrial Transfers and Green Energy

China urged domestic enterprises in its central, western, northeastern and border regions to partner and cooperate with FIEs, indicating a move towards gradual industrial transfers. To monitor the transfer of a foreign-invested enterprise within China, the government will use the credit rating obtained from the Customs authorities at the original place where the enterprise is located. Governmental bodies are also called on to ensure requisite support and efficient project completions for foreign investments.

In addition, FIEs will be enabled in participating in “Green Certificate” trading and inter-regional green power trading. Regulatory bodies plan on introducing policies encouraging the use of environment-friendly sources. This should make it easier for foreign companies to participate in trading green energy certificates and engage in cross-regional energy tractions across different provinces. The initiative aims to create a more conducive environment for business expansion in China while being aligned with sustainable practices.


Simplifying Cross-Border Data Flow

China’s regulations on cross-border data transfer will also undergo a revamp. In the past, due to unclear requirements and slow administrative procedures, China’s regulations on cross-border data transfer has been difficult for FIEs and multinationals to navigate. The Opinions acknowledge this problem by suggesting the establishment of “green channels”, service platforms, and compliance services for FIEs. A pilot program to transfer “general data” more seamlessly between foreign hubs and Beijing, Tianjin, and Shanghai was also proposed.

Financial and Tax Incentives

The Opinions further stipulate financial and tax support for foreign investment and FIEs, such as tax exemptions for reinvestment, tax preferential policies, special funds from the Central Government, and incentives for investments that fall under the Catalogue of Encouraged Industries for Foreign Investment. This will benefit foreign investors in industries such as the advanced manufacturing sector, IT, biomedicine, energy conservation and environmental protection, and modern transportation.

Local investment promotion departments are also mandated to attract foreign investment through various means such as platforms with relevant foreign countries, participation in overseas conferences, and expanding foreign investment promotion channels.

In summary, the high-level policies above underscore China’s commitment to further attract foreign direct investments. As concrete implementation guidelines continue to take shape – particularly in matters concerning procurement, intellectual property, and business incentives – the Opinions are a positive development for foreign investors looking to access one of the world’s largest consumer markets.

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