China: Boosting Foreign Investment in China: State Council Tells Ministries To Roll Up Their Sleeves

Last Updated: 27 August 2010
Article by Nicolas Groffman

China is pushing ahead with its masterplan to encourage foreign investment. The State Council has issued a follow up regulation to its Several Opinions on Further Improving the Work of Foreign Capital Utilization (April Opinions) which called for the introduction of a range of policy initiatives to boost foreign investment in China. The regulation requires designated government departments to come up with detailed plans to implement the policies.

On the one hand the Chinese government has tried to be seen as encouraging foreign investment, but some of its regulations this year have had the opposite effect. The latest document from the State Council is firmly in the camp of encouragement. It will be some time before the relevant government departments can complete their required legislation, but the policies themselves are apparently already in place.

The chart below gives an overview of the relevant foreign investment policies introduced under the April Opinions and identifies the government departments that have been charged with implementing the relevant policies. Of particular interest are the following:

  • qualified foreign invested enterprises (FIEs) will be able to issue shares, corporate bonds and mid-term bills in the Chinese market;
  • devolution of approval authority;
  • encouragement of venture capital and private equity; and
  • allowing foreign investment in the A-share market.

The State Council has, however, stressed the importance of anti-monopoly reviews and establishing a system for "security review" of mergers and acquisitions by foreign investors.

No.

Policy

Department in charge

I. Improving the Foreign Investment Structure

1

The Catalogue for Guiding Foreign Investment in Industries (China's key foreign investment policy document) is to be updated to expand the areas open to foreign investment and encourage foreign investment in the following sectors:

  • High-end manufacturing
  • Hi-tech and modern services
  • Renewable energy and environment protection

The updated Foreign Investment Catalogue is to restrict foreign investment in the following sectors:

  • Projects characterised by high pollution, high energy consumption and resource dependency
  • Projects of a low level and in which there is overcapacity

National Development and Reform Commission

Ministry of Commerce

2

Foreign investment enterprises (FIEs) could be eligible to benefit from China's policies and measures that are part of the state industrial restructuring and revitalisation plan.

National Development and Reform Commission

Ministry of Industry and Information Technology

3

A foreign-funded project that is encouraged by the state and makes intensive use of land is to be given priority in land distribution and the land price can be 70 per cent of the standard minimum price for such land.

Ministry of Land and Resources

4

FIEs in high and new technology are to be encouraged and their accreditation process is to be improved.

Ministry of Science and Technology

Ministry of Finance

State Administration of Taxation

Development and Reform Commission,

Ministry of Commerce

Ministry of Industry and Information Technology

other departments

5

Chinese and foreign enterprises are encouraged to strengthen cooperation in research and development. FIEs and PRC domestic enterprises and research institutions are to be supported to make joint applications for state science and technology development and innovative capacity building projects.

Joint applications for accreditation of the establishment of national technological centres are to be supported.

National Development and Reform Commission

Ministry of Science and Technology

Ministry of Finance

General Administration of Customs

State Administration of Taxation

6

Multinational corporations are encouraged to set up functional departments in China, such as regional headquarters, research and development centres, procurement centres, finance management centres, settlement centres, and cost and profit accounting centres.

Before 31 December 2010, the supplies for scientific and technological development, imported by qualifying research and development centres with foreign investment are to be exempt from import duties, import VAT, and consumption tax.

Ministry of Commerce

State Administration of Foreign Exchange

China Banking Regulatory Commission

National Development and Reform Commission

Ministry of Finance

State Administration for Industry and Commerce

Ministry of Finance

General Administration of Customs

State Administration of Taxation Bureau

7

Foreign investment in the service outsourcing industry is to be supported.

Ministry of Commerce

II. Policies to encourage foreign investment to China's central and western regions

8

The Catalogue of Priority Industries for Foreign Investment in Central and Western China (a policy document encouraging foreign investment in central and western China) is to be updated. The changes will expand the list of labour intensive projects in which foreign investment is encouraged.

National Development and Reform Commission

Ministry of Commerce

9

Preferential tax policies for FIEs in western China are to be continued.

Ministry of Finance

National Development and Reform Commission

Ministry of Commerce

State Administration of Taxation

10

A range of policies are to be put in place to encourage FIEs to transfer their operations to central and western China.

Banks with foreign investment are encouraged to establish branch offices and launch business operations in central and western China.

National Development and Reform Commission

Ministry of Commerce

Ministry of Human Resources and Social Security

State Administration for Industry and Commerce

General Administration of Quality Supervision, Inspection and Quarantine

State Administration of Taxation

State Administration of Foreign Exchange

China Banking Regulatory Commission

11

Regions in eastern China are encouraged to set up development zones jointly with regions in central and western China.

National Development and Reform Commission

Ministry of Commerce

III. Diversifying the ways in which foreigners can invest in China

12

Foreign investors are to be encouraged to buy into domestic enterprises.

Strategic investment by domestic and foreign investors into A-share listed companies is to be encouraged.

Measures are to be introduced to standardise how foreign investors can participate in domestic securities investment and corporate mergers and acquisitions.

Anti-monopoly review is to be implemented pursuant to law.

Efforts to establish a system for the security review of mergers and acquisitions by foreign investors are to be accelerated.

Ministry of Commerce

China Securities Regulatory Commission

National Development and Reform Commission

Ministry of Industry and Information Technology

State Administration for Industry and Commerce

13

Overseas listings are to be encouraged.

China Securities Regulatory Commission

National Development and Reform Commission

Ministry of Commerce

14

Trial projects for the use of foreign investment to establish companies that provide security for small and medium-sized enterprises are to be accelerated.

Measures are to be adopted to encourage foreign investors to form venture capital enterprises, actively use private equity investment funds, and improve the exit mechanism.

National Development and Reform Commission

Ministry of Commerce

State Administration for Industry and Commerce

China Securities Regulatory Commission

State Administration of Foreign Exchange

15

Eligible FIEs are to receive support to list or issue corporate bonds and medium-term notes in China and financial institutions are to be directed to provide more credit support to FIEs.

More overseas entities are to be permitted to issue RMB bonds inside China.

People's Bank of China

China Securities Regulatory Commission

China Banking Regulatory Commission

National Development and Reform Commission

Ministry of Commerce

IV. Further reform of government administration of foreign investment in China

16

Local governments are to be given expanded powers to approve FIE projects. Unless there are other overriding regulations, local governments will be able to approve the following projects:

  • encouraged or permitted projects with a total investment of less than US$300 million;
  • projects for which the relevant ministries have delegated approval authority to them; and
  • FIEs in the service sector (other than financial and telecommunications services).

National Development and Reform Commission

Ministry of Commerce

17

Measures are to be introduced to make procedures for investment approval simpler, quicker and more transparent.

Other measures to be adopted include the promotion of standardised FIE contracts and online administrative licensing.

Ministry of Commerce

National Development and Reform Commission

V. Creation of a sound investment environment

18

More "development zones" are required, to increase institutional innovation and scientific and technological development.

National Development and Reform Commission

Ministry of Land and Resources

Ministry of Housing and Urban-Rural Development

Ministry of Science and Technology

Ministry of Commerce

19

Measures are to be introduced to improve foreign exchange control of FIEs and to simplify the formalities for the settlement of foreign currency capital of FIEs.

FIEs that are unable to pay their capital contribution on time will have more chances to apply for an extension.

State Administration of Foreign Exchange

State Administration for Industry and Commerce

Ministry of Commerce

20

Initiatives are to be adopted to promote foreign investment including campaigns targeting key countries and regions, and key industries and propaganda efforts highlighting China's foreign investment policies.

China will also integrate its "inbound" and "outbound" investment policies, and try to improve the policy environment for cross-border investment.

Ministry of Commerce

National Development and Reform Commission

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