China: China’s State Council Issues New Policies to Boost Foreign Investment in China

Last Updated: 27 April 2010
Article by Nicolas Groffman and Joseph Wang

As part of its plan to bring back foreign investment, the State Council issued Several Opinions on Further Improving the Work of Foreign Capital Utilization on 6 April 2010 ("Opinions").

The Opinions contain a broad range of strategic aims, geared at increasing foreign capital investments and channelling it in specific directions. Many of these are re-statements of existing policies, but sources in government tell us we can expect concrete implementing of regulations in the near future.

The stated aims are set out below.

Amendment to the Catalogue of the Guidance of Foreign Investment Industries ("Catalogue")

Areas open to foreign investors will be expanded. Foreign investors will be encouraged to invest in high-end manufacturing, hi-tech, modern service industry, "new energy" and energy efficiency.

Incentives for multinationals and R&D

  • Transnational companies are encouraged to establish regional headquarters, R&D centres, procurement centres, finance management centres and accounting centres in China.
  • Qualified foreign invested R&D centres could apply for exemption of custom duties and value-added tax as well as consumption tax levied at the time of importation regarding products necessary for technology development before 31 December 2010.

Private equity

Foreign investors are encouraged to establish venture capital enterprises and private equity funds in China, and better exit regimes will be implemented.

Central and western regions

  • Foreign investors are encouraged to invest in labour-intensive industries in the central and western regions which satisfy environmental protection requirements. Tax incentives in these regions would continue to apply to foreign invested enterprises ("FIEs").
  • Foreign banks are encouraged to establish branches or representative offices and operate their business in the middle-west regions.

Listing opportunities

Qualified FIEs will be able to list in the domestic stock market and overseas stock markets, and could issue corporate bonds and middle-term negotiable instruments in China. The scope of offshore entities able to issue RMB bonds in China will be expanded.

Approval procedure and devolution

  • Most projects whose total investment is below US$300 million in the permitted or encouraged categories will be approved by the local government. (Previously, this threshold was US$100 million).
  • The FIE approval procedures and the foreign exchange settlement regime will be simplified, and the approval time limit shortened.
  • In addition, formalizing existing practice, the Opinions state that FIEs with difficulty meeting their funding schedules will be allowed to obtain extensions for capital contribution.

As has been stated, the "Opinions" are a platform for further legislation rather than concrete legislation with immediate benefit for foreign investment. It is also likely that the State Council has taken into consideration the amount of publicity that issuances of this type attract, not least from summaries just like this one, and this would help counteract some of the negative press that some of China's perceived anti-foreign legislation has generated.

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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