China: China's State Council Issued Measures To Launch New Round Of High-Level Opening-Up

Last Updated: 15 December 2017
Article by Mingyan Xu

On 17 January 2017, the State Council issued the Circular on Certain Measures for Expanding Opening-up and Actively Using Foreign Investment (Guo Fa [2017] No.5) (hereinafter "the Circular"). The Circular clearly prompts current and future Chinese foreign investment policy. It is foreseeable that the Chinese government will launch a new round of high-level opening-up by advocating foreign investment and accelerating liberalisation in industries including service, energy and infrastructure development.

I. Background

Since 2008, China has been ranked among the world's top three destinations for foreign investment. There is no doubt that the largest emerging economy – China – was, and is, the most active country in opening up various industries to overseas investors. For example, in 2015, China's chief policymaker – the Central Committee of the Communist Party and the State Council issued Several Opinions of on Building a New Open Economic System, with the purpose of promoting and facilitating investment by expanding market access and improving regulating methods.

However, China still faces considerable competitive pressure on attracting foreign direct investment from both developed and developing countries. According to the World Investment Report 2016, national investment policies continue to gear towards investment liberalisation and promotion.

In 2015, 46 countries and economies cooperatively adopted 96 policy measures affecting foreign investment. Asian developing economies undertook nearly half of all policy measures, while developed countries in North America and Europe also introduced numerous policy measures.

Given this background, in order to preserve its competitive advantages, the State Council of China promulgated the Circular to facilitate the implementation.

II. The key measures of the Circular

The Circular emphasizes on promoting a fair investment environment both before and after a business's entry into the market, to provide a level playing field and equal opportunities to both foreign and domestic companies. It includes measures requiring departmental and regional government bodies to ensure that:

  • companies go through a coherent approval and application procedure
  • companies equally participate in the industry's standard development and public procurement
  • foreign investment companies are provided with adequate protection for intellectual properties
  • companies fairly compete in financing channels
  • companies apply through an uniform registration capital system
  • most importantly, no additional restrictions shall be imposed to impede competition between foreign investment and domestic companies

The following measures are also included to further promote the opening-up of China's market:

  • revising the Catalogue for the Guidance of Foreign Investment Industries to ease access to the service, manufacturing and mining sectors
  • lowering the entry barrier of the service industry and facilitating the establishment of foreign investment banking financial institutions, securities companies, securities investment fund management companies, futures companies, insurance institutions and insurance agencies, etc.
  • deregulating unconventional gas sector, and shifting regulation method from approval to registration for outbound cooperative projects in the areas of gas and natural gas
  • ensuring favourable treatments are equally applied to advanced manufacturing foreign investor participating in the "Made in China 2025" and other innovation-driven development strategies
  • encouraging foreign investment in producer services, including advanced high-end, smart, and green manufacturing, industrial design and modern logistics, etc.
  • ensuring that favourable treatments are equally applied to foreign investor participating in a franchise-based infrastructure development project

The measures also include the following to further enhance the work of foreign investment attraction:

  • requesting regional governments to undertake activities to boost foreign investment
  • encouraging the central, western regional governments and the northeast regional government to make foreign investment industries transfer
  • promoting the two-way flow of capitals and improving the utilisation efficiency of capitals
  • facilitating foreign investment companies' overseas financing
  • deepening the reform in foreign investment administration

III. Conclusion

The Circular prompts policy trends in both foreign investment and competition, and a level playing field is the key word of it.

Comprehensive and systematic measures are taken against existing or proposed differential treatments that are detrimental to foreign investors and investment companies. The fair competition review system is of considerable relevance in this regard, which was established on June 2016 by the State Council and works as an advocacy mechanism to influence the rules and decisions making processes of other government bodies to prevent anti-competitive outcome. For foreign investors and investment companies, a significant advantage of the new mechanism would be its remedy system to challenge restrictions on competition set by some administrative bodies at different levels through protectionism. It will work jointly with competition enforcement, as two arms of competition policy, to ensure a successful opening-up of specific economic sector. The fair competition review system forms part of broader efforts to reform China's competition policy to play a fundamental role in the market economy.

About the opening-up of the market, priorities are placed on the service, energy and infrastructure development industries. Take the service industry as an example, the Circular: (1) relaxes the limits on foreign investment in banking financial institutions, securities companies, securities investment fund management companies, futures companies, insurance institutions and insurance agencies; (2) removes the entry barriers to foreign investment in fields of accounting, auditing, architectural design and rating service, and (3) advocates the opening-up of sectors including telecommunications, internet, culture, education, and transportation in an orderly manner.

This is the first time for China to announce the massive opening-up of the service sector to foreign capitals since its accession to World Trade Organisation 15 years ago. China's commitment to improving investment environment and resolution to advocate competition are strong. Further liberalization is expected through substantial changes, while competition policy will replace industry policy and play a fundamental role in the allocation of production factors in these economic sectors. This is part of the process by which regulation methods and public services quality are enhanced.

Under this circumstance, certain sensitive sectors would be accessible. Conducting initial stress test within free trade zones, and carrying out national security reviews in specific cases would be helpful to reach the balance between the opening-up and national security policy.

By creating a more competitive environment, China will further demonstrate its competitiveness for industries, upgrade its industrial structure, and join the process of national, regional and international market integration as a socialist market economy making the successful transition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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